Policy continuity seen under Marcos presidency, but clarity sought — analysts

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Metro Manila (CNN Philippines, May 12) — Economists expect Ferdinand "Bongbong" Marcos Jr.—the frontrunner in the partial and unofficial vote count—to continue the Duterte administration’s Build, Build, Build program and disposition towards China, but not without raising questions on the specifics of his policies in general.

“Going forward, we expect the change in administration to result in only negligible changes to both economic and foreign policy direction,” said Fitch Solutions in a commentary released Tuesday, recalling how it has referred to Marcos as a “continuity candidate” that will keep infrastructure front and center in his economic policy.

The American think tank has raised the policy continuity subcomponent score in its short-term political risk index (STPRI) for the Philippines to 80.0 from the prior 70.0. The country’s STPRI has likewise improved to 66.5 from 64.0.

“Marcos gave away few policy details on the campaign trail. But one thing he is keen to do is resume the 'Build, Build, Build' infrastructure programme of President Duterte, which he hopes to 'expand and improve'," said Capital Economics emerging Asia economist Alex Holmes.

There is little doubt the country will benefit from this upgrade, added Holmes, who also noted Philippine infrastructure is “rated among the worst in Asia.”

“The incoming president is also keen to pursue closer ties with China. Low interest rate loans from China could help limit the fiscal impact of the infrastructure push. But finance has often come with conditions of relying heavily on Chinese contractors, which limits the positive spill-overs to the local economy,” the analyst said.

Meanwhile, Fitch Solutions expects Marcos to maintain the Philippines’ “delicate” balancing act between the United States, a defense ally, and China being among its top economic partners.

For Oxford Economics associate economist Makoto Tsuchiya, a balancing act between supporting economic recovery and containing the country’s fiscal deficit also awaits the ex-senator.

A fiscal deficit happens when the government spends more than it collects. As of end-2021, it is already 8.61% of the country’s total economic output. Tsuchiya said this could mildly ease to 8% this year, assuming revenues improve somehow amid stronger domestic demand.

“It's also possible that Macros Jr announces a more expansionary fiscal agenda than we currently forecast,” said Tsuchiya. “But the new administration could increase spending on items such as more cash handouts to reduce the rising cost of living facing households or tax relief, without any substantial revenue generating policies or clarity over the path of medium-term fiscal consolidation.”

While more fiscal expenditure could prop up recovery, the economist says this will definitely attract attention from major rating agencies. An outlook revision or a rating downgrade could push borrowing costs up, he warned.

RELATED: Fitch keeps ‘negative’ PH outlook amid uncertain recovery, debt concerns; retains 'BBB' credit rating 

Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco emphasized ambiguity over Marcos’s economic policy positions persist.

The public may only get an inkling of his possible policy direction by the third quarter of 2022 at the earliest as his administration begins to take shape, the analyst said.

“We maintain, though, that this will be too late to salvage this year's economic growth prospects, assuming we're proven right about the temporary—but harsh—brakes likely applied in the current quarter to government spending and investment,” Chanco further explained.

BDO chief market strategist Jonathan Ravelas also told CNN Philippines’ The Final Word on Tuesday night that investors will remain on the sidelines until Marcos presents a “much clearer” plan of action on addressing the country’s health and economic issues.

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"During the campaign, there were times that he mentioned certain economic plans that were used before. But again, it still needs clarity," Ravelas added.

For his part, Foundation for Economic Freedom president Calixto Chikiamco stressed that the Marcos administration could see a huge surge in capital from overseas given the passage of key liberalization laws amending the Public Service Act, Retail Liberalization Act, and Foreign Investment Act.

"So even if he does not pass any new legislation at this point under those laws, if the IRRs (implementing rules and regulations) are crafted correctly, there will be a huge surge in foreign direct investment," said Chikiamco in a separate interview with CNN Philippines on Wednesday.

Ravelas and Chikiamco both said that Marcos could also follow his father's footsteps and tap technocrats for his Cabinet. Marcos Sr., for instance, had as economic planning ministers Gerardo Sicat and Cesar Virata — who also became prime minister then.

RELATED: Marcos: Choosing economic managers among top priorities 

The Philippine economy nosedived by a record 9.5% in 2020, then expanded by 5.7% last year — slightly above the economic managers' 5-5.5% target band. ​Gross domestic product (GDP) expanded 8.3% in the first quarter of 2022 — beating market forecasts and settling within the government's 7-9% estimate range for the year.

Marcos will also be dealing with a wider debt-to-GDP ratio once he assumes office, with the country's total debt stock now at 63.5% of total economic output as of end-March. The international threshold is 60%.