Business Mirror, 07 January 2015
By Cai Ordinario
The Philippines—being a net oil importer—could see faster growth of up to 7.5 percent this year, with the economic gains from the cheaper fuel likely to contribute 1.2 percentage points to the gross domestic product (GDP) expansion, an economist said.
In a briefing on Wednesday, FMIC-UA&P Capital Markets Research economist Victor A. Abola said low oil prices can boost growth by enabling the country to save about $3.25 billion, or around P220 billion, from fuel importations—already equivalent to 1.2 percentage points of GDP.
“This [low oil prices] is the new normal that we can expect in the next couple of years,” Abola told reporters.
This means that, if the economy can grow at 6 percent, an addition of 1.2 percentage points from the oil windfall would result in a growth of 7.2 percent for the full year.
Abola cited US oil forecasts that point to West Texas Intermediate (WTI) crude to average $62.75 per barrel this year, or a reduction of 33.1 percent from last year.
In 2014 Abola said WTI crude averaged around $93.82 per barrel, representing a decline of 4.1 percent.
Likewise, Abola said the US expects Brent crude to average $68.08 per barrel in 2015. This represents a reduction of 31.6 percent from last year.
Last year Brent crude averaged $99.54 per barrel, or an 8.4-percent decline over 2013 value. However, Abola acknowledged that this could negatively impact on the government’s excise-tax collections.
The Bureau of Internal Revenue collects excise taxes from oil importers. An excise tax is a tax on the production, sale or consumption of a commodity in a country.
The highest excise tax on petroleum products that is collected by the government is for lead premium gasoline at P5.35 per liter. Unleaded premium gasoline, on the other hand, is slapped with a P4.35-per-liter excise tax.
Nonetheless, Abola assured that this would not curb government spending and could even increase regular tax collection.
“If the economy is doing well and its growing 7.5 percent, and in current terms, 10 percent, you can expect tax collections [to increase],” Abola said. “Normally tax collections grow faster, so even if you remove the [impact of low oil prices on] government revenues, because of the faster growth, you collect more. It will be offset by the faster growth,” he explained.
Apart from low fuel prices, Abola also said various public-private partnership (PPP) projects that will be awarded and implemented this year will contribute to the growth in government and investment spending.
He cited data from the PPP Center showing around P127.4 billion worth of projects have been awarded and are in the process of construction.
Abola said around P44.3 billion worth of projects will add another 0.3 percent to 0.4 percent to the country’s GDP growth this year.
Further, domestic demand is expected to post a higher growth of 7.5 percent in 2015. This will provide a significant boost to the country’s GDP because the Philippine economy is primarily driven by consumption.
Domestic demand averaged 4.7 percent in the first semester of last year and may have averaged 6.5 percent in the second semester of 2014. However, domestic demand was still stronger in 2013 as it averaged 10.4 percent. As a result of the expected increase in domestic demand in 2015, household, government and investment spending are expected to be strong this year.
Consumer spending is expected to post a growth of 6.5 percent, while investment spending is expected to return to double-digit growth of around 14 percent. With the 2016 elections just around the corner, Abola said government spending is expected to grow by 6.6 percent in 2015.
In December 2014 Socioeconomic Planning Secretary Arsenio M. Balisacan said the public should expect “overspending” on the part of the government to make up for the lackluster growth of public spending last year.
Balisacan said while election spending is a “bonus,” the government’s reconstruction and rehabilitation in the Yolanda corridor, as well as the implementation of various public works, will boost government spending this year.
