Getting back on track
We Filipinos are afraid of success; whenever our economy starts riding high, we always manage to drag it down again,” I heard someone quip many years ago, as he noted the boom-and-bust cycle that our economy just can’t seem to get out of. How quickly can we get out of our current “bust”? Answering this takes understanding what brought us where we are now, and making the right moves to address them. To me, three key pillars of the economy stand out: fixed investment, government finances, and agricultural productivity. Reversing the slide in all three is essential to getting our economy back on track.
Falling investment is the biggest threat and toughest problem to solve. Gross fixed capital formation, which sums up investment spending by both government and the private sector and by Filipino and foreign investors, has dropped for three consecutive quarters, and was down by an alarming -13.7 percent last quarter. Everyone blames the deep dive in government construction triggered by the flood control corruption scandal for that. But not many realize that even prior to that, something was already fundamentally wrong, evidenced by a progressive slowdown in fixed investments since 2021 as the country emerged from pandemic-induced recession. From a 9.9 percent bounce-back in 2021 (reversing a -27.3-percent dive in 2020), it softened every year thereafter, down to 8.2 percent by 2023, further down to 6.3 percent in 2024, then barely grew at 0.8 percent last year in the wake of the scandal. And now it’s a deep negative. This is a major drawback because fixed investment, which creates jobs and builds future productive capacity, should be driving our growth and not one-off consumption, which has always dominantly driven it before. Yet even the latter has also slowed down to only 3 percent, from previous growth rates exceeding 5 percent.
More worrying is how private investments have been infected with the contagion of decline in public infrastructure investments, seen in how durable equipment and farm investments (breeding stock and orchard development) also declined -13.6 and -7.6 percent, respectively. This means that reversing the decline and restoring the economy’s previous growth track will not simply be a matter of speeding up government’s infrastructure spending. It also requires attracting both Filipino and foreign private investors to put higher bets on the Philippine economy, a tall order at a time of great risk and uncertainty from both internal and external dampeners of business confidence.
Meanwhile, government finances are being squeezed from both sides, as tax revenues naturally slow down with the slowdown in economic activity, even as the emerging 2027 budget is poised to escalate government spending. This could only mean even more borrowing. Government projects national debt to rise further to P21.5 trillion by next year, from P19.1 trillion now. This is a 12.6-percent growth that outstrips the expected growth fourfold in our national income, now growing at under 3 percent as of the first half of 2026. This is a big red flag for fiscal management, where prudence requires that debt not be allowed to grow faster than income (that is, the capacity to repay it).
Our agricultural productivity problem has been a long-term issue that is evident from the high cost of food in our country relative to our neighbors, and even relative to far richer countries. The larger damage is through high incidence of malnutrition, especially in young children, for whom impaired brain and physical development depresses their productivity as the country’s future workforce. All this arose from a traditionally flawed policy approach of excessive trade protection that perpetuated neglect of effective support for long-term farm productivity improvement to maintain competitiveness and price parity with imports.
Can we somehow reverse these weaknesses and get back on a higher growth track? Pax Silica could provide a major boost to flagging investments, but we must make sure to avoid possible costly long-term negative effects. Improved tax effort and prudent expenditure management are inescapable must-dos, but will demand unusual political will in the approach to the 2028 national elections. Outside-the-box approaches have long been needed to address our farm and food security crisis, but I’ve long maintained that we need a thorough revamp of agricultural governance as a first step.
International development finance institutions project our economy to grow by 3.7-3.9 percent in 2026, after averaging only 2.6 percent in the first half. This implies that they see our economy growing at 4.8 to 5.2 percent in the latter half of this year. This means they believe that the worst is over for the Philippine economy. Perhaps they have more faith in our political leaders and policymakers than most of us probably do. I sure hope they are right.
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