Purisima: Foundations built to sustain growth-supportive policy for the medium term

The Philippines has sufficiently freed itself from structural and fiscal constraints for the next administration to continue ramping up productive investments in infrastructure and social services for the medium-term horizon. According to outgoing Finance Secretary Cesar V. Purisima, the past 6 years has built the right foundations, setting the stage for wider policy options to sustain growth.

With news of the next administration intending to double down on spending, raise the deficit ceiling, and borrow more, Purisima extended his support, convinced that enough confidence and fiscal space has been amassed for the government to support a more expansionary fiscal policy stance.

The country has increased both national government and specifically tax revenues by at least two-thirds from pre-2010 levels–raising the education budget by 125%, health by 336%, infrastructure by 360% (now matched with 5% of our GDP), and social services by 166%–in what has become a period of unprecedented investment in the Filipino people. For so long as the current growth trajectory is maintained, growth-inducing expenditures will keep having more and more room to comfortably expand. Meanwhile, a holistic tax reform effort can further spur long-term, equitable, and inclusive growth without sacrificing the country’s macroeconomic position–as long as the measure is kept revenue-positive and helps push the tax effort to 16% of GDP.

With the country hailed as the most upgraded investment-grade sovereign, the next administration is likewise in a position to tap the markets to finance aspirational growth requirements if needed. With a record debt-to-GDP level of 44.8% in 2015 and low weighted average interest rates (WAIR), the Philippines has reasonable room to maneuver. Purisima is likewise confident the incoming economic team has the experience and expertise to navigate a fiscally sustainable path in today’s lending environment.

Awash with hope, the Philippines enters its best period yet.