Who’s afraid of a weak peso?

IN RECENT days, the peso has dipped to a three-year low at P45 to a dollar. Should government authorities panic? I hope not. Overall, its effect on economic growth, employment, the government’s fiscal position, and the Bangko Sentral’s financial position is positive.

The weakness of the peso could have an adverse impact on government interest payments for 2014, National Treasurer Rosalia de Leon said on Tuesday. She estimated that for every peso appreciation against the US dollar, the government’s interest cost increases by P2 billion.

But she didn’t appear alarmed. She mentioned that there are offsetting factors to the peso depreciation. For one, the government intends to borrow less than last year. It plans to borrow P715 billion from both foreign and local sources in 2014. This is lower than 2013’s borrowing program of P735 billion.

The planned financing mix this year is 13% foreign sources, 87% domestic sources, or P95 billion externally and P620 billion internally.

In preparing the 2014 budget, the government assumed an exchange rate of P41-P43 per US dollar. Assuming that the peso averages P45 per US dollar, or two pesos lower, then the government could save $160 million (P7.2 billion), since it would have to borrow only $2.11 billion instead of $2.26 billion. That’s more than the potential additional borrowing cost (the difference between P45 and P42 times P2 billion) estimated by Treasurer de Leon.

But the Development Budget Coordination Committee (DBCC), the country’s top fiscal policy body, has done a budget sensitivity analysis to some macroeconomic parameters for FY 2014.

Based on the budget sensitivity table, a one-peso depreciation could result in a P5.5 billion surplus or reduction in the budget deficit. Revenues will increase by P8.4 billion through higher tax collection by both the Bureaus of Customs and Internal Revenue. The incresase will be partly offset by a P2.9 billion increase in disbursement owing to higher interest payments.

With a P3 peso depreciation, to P45/$1 from P42/$1, the budget deficit will be reduced by P16.5 billion (P5.5 times P3). Hence, the fiscal authorities should not fear the peso depreciation.

The monetary authorities should not fear the weaker peso, too. It means lower financial losses, or slight financial gains, for them. With the peso depreciation the BSP would have the opportunity to make up for its prior year’s gigantic loses.

Workers in both export-oriented and import-oriented manufacturing and agriculture are big winners too. A weaker peso provides greater opportunity for those employed, together the unemployed and underemployed sitting in the sidelines, to find better and more decent jobs.

The families of OFW workers are big winners too. With a weaker peso, their remittances will increase, in peso terms. Consequently, they can consume and invest more. In turn, the economy could grow much faster.

And according to the DBCC sensitivity analysis, a one-percentage point increase in real GDP growth could raise government revenues by P17.1, which the government can then spend in the next budget cycle. This should appeal to policymakers and fiscal authorities.

Overall, the benefits outweigh the costs of a weaker peso. Hence, policymakers shouldn’t fear it. They should embrace rather than fight it.

(The author is Professor of Economics at the UP School of Economics and former Secretary of Budget and Management.)

Growth, joblessness and poverty

THE PHILIPPINES’ above normal growth during the last two years has been the highest in ASEAN-5. Yet it, too, has the highest unemployment rate and poverty incidence. With its economic expansion showing some sign of weakness, what kind of future can Filipinos expect?

According to the most recent International Labor Organization unemployment data, the Philippines has the worst unemployment rate among ASEAN countries and Asia (India and China).

Where is the unemployment rate the highest? In the Philippines.

Not surprisingly, the recent Pulse Asia’s December 2013 Ulat ng Bayan survey results show a worsening perception of quality of life (QOL) and the state of the national economy.

When asked to compare their situation in December 2013 relative to that 12 months ago, 84% said that either they were worse off in December 2013 relative to that 12 months ago, or things had not changed -- 43% said that their personal situation had deteriorated while 41% had said that their personal circumstances had remained unchanged. Only a small minority (15%) said that their personal situation had improved.

And even in the face of an improving economy, a big plurality of Filipinos (45%) expect no change in their economic circumstances in the coming 12 months.

The optimists (37%) outnumber the pessimists (19%) in the next 12 months, however.

Where is optimism for the next 12 months the highest? In the Visayas (41%) and Mindanao (41%). Unexpectedly, pessimism is the highest in Mindanao too (26%).

STATE OF THE ECONOMY HAS WORSENED
One of every two Filipinos (50%) said that the national economy is worse now than the last 12 months. Forty percent (40%) said it has remained unchanged, while only 11% said that it has improved.

Simply put, nine of every 10 Filipinos (90%) did not feel the 7% GDP growth during the last 12 months. This suggests that the strong growth was narrow and shallow. It was far from being inclusive.

The change in perception was quick and drastic. Comparing the survey results in December 2013 with those in June 2013, there was a large increase in the percentage of Filipinos who saw the worsening of the economy -- to half from 39%. Similarly, the percentage of Filipinos who saw an improvement shrank from 28% in June 2013 to 11% in December 2013.

CCT COSTS AND BENEFITS
Some might ask: what happened to the government’s Conditional Cash Transfer (CCT) Program, which had a budget of P44.2 billion in 2013? How many household-beneficiaries were promised and how many were delivered?

In 2014, Congress has appropriated 62.6 billion for CCT. The promise is that the program will benefit 4,329,769 households for the regular CCT; 131,963 for the modified CCT; and 4,287,630 children beneficiaries for the CCT extended coverage until high school.

Does the CCT program really work? Now on its fifth year of implementation, the program needs an independent external evaluation. The Commission on Audit found some lapses in the program’s implementation.

The evaluation should find out whether CCT program really delivers on its promises and whether there are better ways of achieving its objective, which is to minimize dropout rates of poor students.

(The author is Professor of Economics and former Secretary of Budget and Management.)

MRT boss defends ‘crowd control’ amid jeering riders

The head of the Metro Rail Transit Line 3 (MRT 3), which runs through Edsa, defended a recently implemented “crowd control” scheme limiting train riders to batches of 500 people at a time.
In an Inquirer Radio interview on Thursday, MRT general manager Al Vitangcol III said the measure was meant to ease congestion at the stations while promoting passenger safety.

Vitangcol, who acknowledged that the trains were operating at overcapacity, also explained that the measure would allow a more equitable distribution of riders on the 17-km elevated railway.

MRT stations are located at North Avenue, Quezon Avenue, Kamuning, Cubao and Santolan-Annapolis, all in Quezon City; Ortigas Avenue in Pasig City; Shaw Blvd. and Boni Avenue in Mandaluyong City; Guadalupe, Sen. Gil Puyat Avenue (Buendia), Ayala Avenue and Magallanes Avenue in Makati City; and Taft Avenue in Pasay City.

Due to the sheer volume of passengers, southbound trains originating from North Avenue, for example, could already reach full capacity at the fourth station in Cubao, Vitangcol noted.

Vitangcol stood firm on the measure despite mounting complaints, some of them posted on social media.

“The new MRT crowd control scheme is marvelous! Now we have to wait 15 minutes longer than usual just to board the train. Bravo!” said a Twitter user, Alex L. 

“Thinking about MRT’s new crowd control scheme inspires me (to go back to sleep). Zzzz!” added Michi Guiritan.

Before the new system was implemented, the trip from North Avenue to Magallenes was only 35 minutes but “now it’s one hour for the queue and then 35 minutes for the train ride. Good job, MRT!” said Jessica Tin Miraña.

In an earlier interview, Secretary Joseph Abaya of the Department of Transportation and Communications said the agency was in the process of acquiring more train cars.

The department is currently evaluating the proposal of China’s Dalian Locomotive & Rolling Stock Co.–CNR Group, which emerged as the only qualified bidder during an auction held in June.

DOTC said it was targeting an additional 48 trains to serve the estimated 600,000 people now taking the trains daily, a volume well above its designed capacity of 350,000. MRT currently has a fleet of 73 train cars.—With a report from Ramon Royandoyan

Read more: http://newsinfo.inquirer.net/549501/mrt-boss-defends-crowd-control-amid-jeering-riders#ixzz2nyQ1EzQz

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Gov't Debt

Outstanding gov't debt at P7.73 trillion as of June
 
THE COUNTRY'S outstanding public sector debt (OPSD) reached P7.73 trillion as of June, the government reported on Friday.

In a statement, the Finance department said the consolidated outstanding debt of the public sector was equivalent to just 70.2% of the country's gross domestic product (GDP) for the period.

This is smaller than the 73.1% OPSD-to-GDP ratio recorded as of the same period last year. This is likewise down from the 71.3% ratio as of March.

The Philippine economy grew by 7.7% in the first quarter and 7.6% in the second quarter, bringing first-half GDP growth to 7.65%. In nominal terms, the GDP totaled P11.016 trillion in the six-month period.

The OPSD represents the total outstanding debt of the national government (NG), local government units (LGUs), the 14 monitored non-financial government corporations (MNFGCs), social security institutions, the Bangko Sentral ng Pilipinas (BSP), and government financial institutions (GFIs), minus the government's holdings of its own debt through the above entities and the Bond Sinking Fund (BSF).

Broken down, the domestic debt of the public sector as of end-June totaled P5.52 trillion. Meanwhile, foreign public sector debt amounted to P2.21 trillion.

"As of June 2013, 28.7% of the total consolidated outstanding public sector debt is owed to foreign creditors, and the remaining 71.3% is owed to domestic creditors," the Finance department said.

Meanwhile, on a per sector basis, of the total outstanding public sector debt, non-financial liabilities -- the debt of the national government, LGUs, government corporations, and social security institutions -- amounted to P5.7 trillion as of June 2013, equivalent to 51.8% of GDP.

This is greater than the P5.44 trillion recorded as of June last year, which was, however, equivalent to a higher ratio of 54% of GDP.

The end-June 2013 level was also higher than the P5.45 trillion recorded as of March 2013, which was just 50.4% of the economy.

"This was attributed to the P169.8 billion increase in NG debt, the LGUs, and the increase in debt of both the domestic and foreign liabilities of the 14 MNFGCs," the Finance department said.

For financial public corporations, their outstanding debt stood at P3.78 trillion as of June, higher than the P3.404-trillion year-ago level but down from the end-March 2013 tally of P3.888 trillion.

"Bangko Sentral ng Pilipinas (BSP) debt registered a decrease of 2.8%, offset by a slight increase of 0.1% in the debt of the Government Financial Institutions (GFIs) from March 2013 level," it noted.

The government's holdings of its own debt totaled P1.72 trillion in the first semester.

Meanwhile, general government (GG) debt -- which consolidates the outstanding debt of the national government, LGUs, the Central Bank Board of Liquidators (CB-BOL), and social security institutions -- amounted to P4.315 trillion as of the first semester.

This was higher than the end-June 2012 level of P4.153 trillion and the P4.156 trillion registered as of March 2013.

As a percentage of the economy, these liabilities comprised 39.2% of GDP in the first semester, improving from the 41.2% ratio recorded as of the same period last year but slightly higher than the 38.5% GG debt-to-GDP ratio registered as of March.

Debt as a percentage of GDP is a measure used by many debt watchers to assess the creditworthiness of sovereigns.

A smaller ratio indicates that a country has more than enough resources to settle its liabilities.

source:  Businessworld, 12/13/2013

Remittances seen to beat target

THE BANGKO Sentral ng Pilipinas (BSP) expects to breach its remittance target of 5% more than in 2012 on the back of higher inflows, buoyed by seasonal flows and money sent home by relatives of those affected by typhoon Yolanda (international name: Haiyan), the central bank chief said.

"With the reports we are getting now, there is an increase in remittances, but you cannot segregate remittances due to the calamities and those due to seasonal flows," said BSP Governor Amando M. Tetangco, Jr. at a media forum last Friday, when asked if the central bank expects more remittance inflows towards the end of the year amid expectations of larger inflows due to typhoon Yolanda.

"At this point in time, we are no longer changing the forecast of 5% for the year. But our January-to-September growth rate of remittances is actually 5.8%, so it looks like we will exceed the projected whole year growth of 5%," Mr. Tetangco continued.

This is in line with BSP Deputy Governor Diwa C. Guinigundo’s earlier statement that the volume of money sent home by overseas Filipinos is expected to post higher-than-normal rates towards the end of the year due to expectations that migrant Filipinos will send more money home to support families affected by the typhoon, which battered the central Philippines last month.

Remittances rose by 5.27% to $1.935 billion in September from a year ago. The result is the biggest so far this year and brought the year-to-date tally to $16.480 billion, up 5.84% from last year.

The central bank aims for remittances to rise by 5% this year from the $21.391 billion recorded last year.

The amount of money sent home by Filipinos abroad usually rises towards Christmas and the enrollment season.

However, due to the calamities that recently struck the country, remittances are expected to rise above normal levels, central bank officials said.

"If you look at the experience in remittances during typhoons Pepeng and Ondoy in 2009, there was an increase in the rate of growth of remittances from about 5% or 6% per annum to 11% per annum towards the end of 2009; this is the year-on-year growth seen on a monthly basis. [Regarding] the cumulative growth by 2009, there was an acceleration by about .5%," Mr. Tetangco explained.

For next year, meanwhile, he said "the BSP is keeping the 5% target" but noted that the central bank’s projections are being reviewed periodically to take into account various developments.

Remittances are normally equivalent to 10% of the gross domestic product (GDP), and previous disasters have seen an increase of up to 15%.

Super typhoon Yolanda, devastated parts of the central Philippines last month, causing 5,632 deaths and P30.65 billion in infrastructure and agriculture damage, according to the National Disaster Risk Reduction and Management Council’s latest report yesterday. -- Ann Rozainne R. Gregorio

source:  Businessworld

Embattled taxman takes aim at the famous

THE PHILIPPINES’ taxman has long struggled to compel the country’s elite pay its fair share, but a name-and-shame campaign targeting one of history’s greatest boxers and the "sexiest woman alive" is aiming to change that.

A crusade against wealthy Filipinos is part of President Benigno S. C. Aquino III’s high-profile effort to curb tax evasion throughout all sectors of society, a central plank of his quest to fight widespread corruption.

Boxing hero Emmanuel "Manny" D. Pacquiao became the latest to be caught in the crosshairs when the Bureau of Internal Revenue froze his bank accounts last week for refusing to pay a $50-million tax bill related to earnings in the ring in 2008 and 2009. The boxer says he has already paid the required taxes in the United States and paying in the Philippines would equate to double taxation.

While the champion appeared stunned and claimed he was being harassed, it was in fact just the latest strike by the BIR since Mr. Aquino came to power in 2010 that has targeted hundreds of rich or famous Filipinos.

"When ordinary people see that we are going after popular and well-known figures... it drives home the point that paying taxes is a civic duty," Claro B. Ortiz, who runs the bureau’s Run After Tax Evaders (RATE) campaign, told AFP.

The revenue bureau has so far filed criminal complaints or charges against 200 wealthy Filipinos it accuses of avoiding a combined P44.45 billion ($1.02 billion) in taxes.

Mr. Pacquiao, who is also a second-term congressman with ambitions of eventually becoming president, has not been charged. His case is currently a civil matter. Among those facing criminal prosecution are actor-model celebrities, including Solenn A. Heussaff, named by the Philippine edition of Esquire magazine this year as "the sexiest woman alive". Wealthy individuals who are away from the limelight are also being pursued, including a precious metals trader who allegedly failed to disclose over a billion pesos’ worth of refined gold and silver sales to the central bank.

Tax evasion is punishable by up to 10 years in jail. However, those facing prosecution can have charges or criminal complaints dropped by cutting a deal with the revenue bureau, or hope to have their case lost in the quicksand of the Philippines’ justice system. Criminal cases in the Philippines’ overwhelmed courts take an average of six years to complete, according to 2010 government data.

The Philippines is also infamous for a "culture of impunity" in which the wealthy or powerful are able to bribe, intimidate or otherwise use their influence so that they are rarely held accountable for crimes. Just one person has been put behind bars for tax evasion since Mr. Aquino came to power in 2010, and her four-year prison term, meted out last year stemmed from charges filed in 2005.

But the government is banking on a wide range of name-and-shame techniques to fight tax evasion. It regularly publishes in newspapers lists of top tax-paying companies in various industries and asks readers whether successful businesses they know of should be there. It also releases an annual list of the country’s wealthiest individuals and companies, highlighting the huge difference between their riches and taxes paid.

Occasionally there is also some direct presidential intervention. In March, Mr. Aquino warned the Chinese-Filipino community to start paying taxes or face prosecution. In an address to an annual meeting of the Federation of Filipino-Chinese Chambers of Commerce and Industry, Mr. Aquino said just 8% of its companies paid taxes.

The stakes are so high in the Philippines because tax evasion costs $10 billion each year, equivalent to 4% of GDP. The government is claiming limited success in its campaign, citing tax collections having risen by 14% last year.

However, has also acknowledged there is a long way to go before tax evasion is tamed, and that the onus rests on whoever takes over from Mr. Aquino in 2016 to continue long-term anti-corruption reforms. -- AFP

source:  Businessworld

Country’s tax ranking rises

THE PHILIPPINES has risen several places in the World Bank and International Finance Corp.’s global tax rankings, benefiting from continued reforms said to have made compliance more efficient and less costly.

The country ranked 131st out of 189 economies in the annual "Paying Taxes" report after placing 143rd out of 185 last year.

The United Arab Emirates was ranked first, followed by Qatar, Saudi Arabia, Hong Kong and Singapore. At the bottom, meanwhile, were Bolivia, Guinea, Venezuela, Central African Republic, and Chad.

The World Bank and IFC list measures the overall ease of paying taxes -- based on mandatory levies and contributions imposed on medium-sized firms in a given year -- with regard to three main indicators: number of payments, time given to comply and the total tax rate imposed.

This year’s report -- the result of surveys from June 2012 to June 2013 -- showed that globally, businesses spent an average of 268 hours in complying with 26.7 tax payments and paid 43.1% of their commercial profit for these. Last year, they took 267 hours, made 27.2 payments and dealt with a 44.7% tax rate.

"Economies around the world are adopting a range of policies as they strive to strike a balance between raising tax revenues and encouraging growth," it noted.

For the Philippines, the Bureau of Internal Revenue’s (BIR) implementation of electronic facilities for tax payments was said to have helped this year.

The country was noted as requiring 36 tax payments from businesses per year, still higher than the world average of 26.7. One corporate income tax payment, 25 labor tax payments and social contributions, and 10 other forms of taxes are mandated. These numbers, however, improved from the 47 payments reported last year as labor taxes then totaled 36.

"In the Philippines, an electronic filing and payment system for social security contributions, health insurance and housing development fund contributions was launched in 2012. Over the past two years the system has been rolled out and in 2012 the majority of companies adopted this new system which reduced the number of payments by 11," the report noted.

The country’s total tax rate likewise went down to 44.5% of firms’ commercial profit from last year’s 46.6% -- albeit still higher than the global benchmark of 43.1%. Of this, 19.6% goes to corporate income tax, 10.8% to labor taxes and social contributions, and 14.1% to other taxes. In last year’s report, the numbers were 21.1%, 11.3% and 14.2%, respectively.

As for the time required for compliance, meanwhile, businesses here spend 193 hours to settle their tax liabilities, lower than the global average of 267. Of this, 42 hours are needed to pay corporate income tax, 38 hours for labor taxes and social contributions, and 113 hours for consumption taxes -- unchanged from last year’s report.

The report noted that governments worldwide continued to reform their respective tax regimes to reduce the administrative burden. The most common initiative noted remained the introduction or improvement of online filing and payment systems.

source:  Businessworld