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State infrastructure spending surged by 65.8% in August as the government ramped up the implementation of projects, the Department of Budget and Management (DBM) said.

In its latest National Government (NG) disbursement report, the DBM said infrastructure and other capital outlays jumped to PHP 122.1 billion in August from PHP 73.7 billion in the same month a year ago.

Month on month, infrastructure spending also rose by 10% from PHP 111 billion in July.

“This was largely attributed to the disbursements made by the Department of Public Works and Highways (DPWH) for its completed projects nationwide, such as national roads and bridges, infrastructure projects, flood control projects, convergence programs, and payment of right-of-way claims,” the DBM said.

Capital expenditures for the month also included the health facilities enhancement program of the Department of Health.

The DBM also cited payments made by development partners for the Department of Transportation’s (DoTr) railway projects, such as the Malolos-Clark Railway Project and the South Commuter Railway Project.

“The increase, however, was partly tempered by lower capital outlay disbursements posted in the Department of National Defense, largely due to the timing of releases for their Revised Armed Forces of the Philippines Modernization Program (RAFPMP),” the DBM said.

It noted that “big-ticket releases” are scheduled for the fourth quarter this year, unlike last year when significant disbursements were made in August.

In the first eight months, infrastructure spending climbed by 19.2% to PHP 740.3 billion from PHP 621.2 billion a year ago.

The Budget department attributed this to DPWH’s “robust spending performance.” It cited the accelerated project implementation for roads and bridges, closer monitoring of construction work, and expedited processing of billings by implementing offices.

“The direct payments made by foreign creditors of the DoTr for their foreign-assisted rail transport projects also contributed to the higher infrastructure and other capital outlays for the period,” the DBM added.

Meanwhile, infrastructure disbursements in the January-August period went up by 12.1% to PHP 876.6 billion from PHP 781.7 billion a year earlier.

These included estimated NG infrastructure disbursements and infrastructure components of subsidy and equity to government-owned and -controlled corporations and transfers to local government units.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the higher infrastructure spending was due to the “commitment to ramp up government spending for the rest of 2023 after some underspending earlier this year to help support faster economic growth and recovery.”

“Furthermore, the base effects were already lower after the election-related spending earlier in 2022, thereby mathematically leading to faster year-on-year growth,” Mr. Ricafort added.

The Philippines’ gross domestic product (GDP) grew by 4.3% in the second quarter, the slowest in over two years. This was partially attributed to slow state spending, which contracted by 7.1%.

Government agencies have been tasked to come up with catch-up spending plans amid the low budget utilization in the first half.

The Department of Finance earlier said it is working with agencies to address challenges to spending, including procurement, implementation and payment issues.

This year, the government plans to spend 5.3% of GDP on infrastructure, equivalent to PHP 1.29 trillion. — Luisa Maria Jacinta C. Jocson

Governments should impose a global minimum tax on billionaires, which could raise as much as USD 250 billion annually, according to a report by the EU Tax Observatory.

A 2% minimum wealth tax could generate as much as USD 17.3 billion (around PHP 983 billion) from 260 billionaires in South and Southeast Asia alone, the EU Tax Observatory said in the Global Tax Evasion Report 2024 released on Monday.

The 260 billionaires in South and Southeast Asia have a combined wealth of USD 991 billion and have paid around USD 2.5 billion in personal tax annually.

The EU Tax Observatory noted that tax evasion “including gray-zone evasion at the border of legality” is increasingly happening domestically.

Globally, billionaires have had “very low” personal effective tax rates ranging from 0% to 0.5% of their wealth, due to the frequent use of shell companies to avoid income taxes, it added.

“When expressed as a fraction of income and considering all taxes paid at all levels of government beyond personal taxes (including corporate taxes, consumption taxes, payroll taxes, etc.), the effective tax rates of billionaires appear significantly lower than those of all other groups of the population,” it added.

It also cited studies that showed that around 25% of global offshore financial wealth remains untaxed.

The EU Tax Observatory, an independent research laboratory, proposed a global minimum tax on billionaires, equal to 2% of their wealth which could raise nearly USD 250 billion from less than 3,000 individuals annually.

“Under this assumption, global billionaires pay around USD 44 billion in personal taxes today, about 0.35% of their wealth. A minimum tax that would bring their personal tax payments to 2% of wealth would thus add the equivalent of 1.65% of their wealth in tax. This minimum tax would generate USD 214 billion in government revenue globally,” it added.

In the Philippines, different versions of a wealth tax have been proposed in recent years.

Last year, the Makabayan bloc filed House Bill No. 258, which seeks to impose a 1-3% tax on the “super-rich” or people with net value of taxable assets exceeding P1 billion. It estimated the tax would raise PHP 236.7 billion annually from the 50 richest Filipinos.

ACT Teachers Party-list Representative and Deputy Minority Leader France L. Castro, who is one of the bill’s authors, said that the government should not hesitate to tax wealthy individuals.

“I think that the super-rich in the Philippines would themselves like to help the country, where they made their billions, to prosper and to assist in uplifting the lives of Filipinos if given the chance,” Ms. Castro said in a statement sent through Viber.

Meanwhile, Eleanor L. Roque, tax principal of P&A Grant Thornton, warned of the “unintended consequences” of a billionaire’s tax.

“I think only very few countries in the world impose a wealth tax. Wealthy individuals have shifted tax residences to escape wealth tax,” she said in a Viber message.

Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon also said a wealth tax would be difficult to implement.

“I believe people in that category are already taxed, they have corresponding taxes from their companies, or they are taxed from their dividends. (The tax) would be an added layer. I think people would try to circumvent that by splitting their holdings to their heirs or other people, so they won’t be part of the billionaire’s (bracket),” he said in a phone call.

Ateneo de Manila University economics professor Leonardo A. Lanzona also noted that the wealth tax may not be as effective in the Philippines as most billionaires “engage in tax planning and mitigation strategies to legally reduce their tax liabilities.”

“This can include using trusts, tax-efficient investments, and other financial instruments. They may also decide not to reveal their wealth fully and engage in tax evasion. Hence, for wealth taxes to work, the necessary institutional reforms are needed to ensure that these billionaires pay their taxes truthfully,” he said in an e-mail.

PCCI’s Mr. Barcelon also noted that there would be a need to clarify what constitutes a “billionaire.”

“A billionaire in terms of peso, that’s quite small. It depends on what currency you’re talking about. A billionaire in (terms of) US dollar is quite big,” he said in mixed English and Filipino.

On the other hand, the billionaire’s tax could also be a means to address inequality, Mr. Lanzona said.

“As far as tax revenues go, the country is already scraping the bottom of the barrel through indirect taxes such as the value-added taxes and sin taxes. Imposing progressive wealth taxes offers an alternative source of revenue which is critical at the time when most of our loans are maturing in the short term,” he said.

A study by think tank Ibon Foundation earlier this year showed that a wealth tax on the country’s billionaires can generate P468.8 billion annually. — By Luisa Maria Jacinta C. Jocson, Reporter

Jennelyn Valencia-Burgos, 33, is among many Filipinos who have installed solar panels on her roof to ease costs in a country with the most expensive power rates in Southeast Asia.

Ms. Burgos, who spent PHP 65,000 (USD 1,145) on her solar panels, said her monthly electricity bill used to cost as much as PHP 1,000 a month. Now, there are months when she doesn’t have to pay for power.

“It’s worth it, especially if you have several panels,” she said in a Facebook Messenger chat. “Yes, it’s expensive, but it will really save you money.”

The Philippines relies heavily on imported coal, most of it from Indonesia and Australia, exposing its electricity system to political unrest, price volatility and the risk of unfavorable foreign exchange rates.

There’s a push for renewable energy and solar energy is expected to drive the Philippines’ renewable energy growth in the next decade, according to a report from Fitch Solutions Country Risk and Industry Research.

The country aims to increase the share of renewable energy in its power mix to 35% by 2030 and 50% by 2040 from 22% now.

Household use of solar panels is being pushed to ease the effects of rising electricity prices. Solar rooftops are expected to help households especially during the summer months when power supply is tight.

Early this year, the Luzon power grid was placed under red and yellow alerts, with more than 300,000 customers in Metro Manila and nearby provinces experiencing brownouts after transmission lines tripped, forcing two power plants to shut down.

Another measure being pushed by the Department of Energy (DoE) is the net metering program, which allows household consumers with renewable energy facilities such as solar power to use electricity when needed while contributing their output to the grid.

Net metering, which allowed consumers to earn credit for their power export, was the first policy mechanism of the Philippine Renewable Energy Act of 2008 that was first implemented. The program is open to users with a capacity of as much as 100 kilowatts (kW).

There were 6,665 net metering customers at the end of last year with an installed capacity of 40,075 kilowatts peak (kWp), according to Ferdinand O. Geluz, Manila Electric Co. first vice-president and chief commercial officer.

The Energy Regulatory Commission (ERC) has said net metering protects consumers from rising electricity prices.

To qualify, a consumer must apply with a distribution utility for evaluation, inspection, completion and commissioning, but the application process varies from local government to local government.

To install a solar photovoltaic (PV) system with net metering, a customer needs a solar PV panel that absorbs light, and a DC/AC inverter that converts the panel’s direct current output to alternating current, which can then be fed into a commercial electrical grid or used off grid.

Compliance hurdles
Senator Sherwin T. Gatchalian, vice-chairman of the Senate Energy Committee, has proposed to remove the 100-kW cap for net metering to encourage more Filipinos to invest in renewable energy.

The Energy Regulatory Commission last year approved the use of renewable energy of as much as 1 megawatt (MW).

“Last year, we issued the regulatory framework for distributed energy resources or DERs that already allows the installation of up to 1-megawatt (MW) RE installations for a customer’s own use,” ERC Chairperson and Chief Executive Officer Monalisa C. Dimalanta said in a Viber message.

“This 1-MW cap will be reviewed after one to two years to see if there is demand to increase the cap,” she said.

This would allow the regulator to unlock the ability of large consumers to choose and provide themselves with renewable energy, Ms. Dimalanta said, “while managing the impact on remaining captive customers of distribution utilities.”

She added that current procedures are already enough and streamlined and that the challenge in solar rooftop utilization now lies within local government units.

Ms. Dimalanta noted that on the regulatory side for residential consumers, the procedure is already clear and streamlined.

“It is now a matter of implementation to make sure it is seamless from the national agency to the distribution utility to the local government unit,” she said. “The remaining challenges are information dissemination and access to financing.”

Solar PV installations are not yet widespread in the Philippines mainly due to lack of awareness among homeowners, according to the Institute for Climate and Sustainable Cities (ICSC).

“Many consumers are not yet aware of the potential cost savings attributed to solar energy on their rooftop,” Jephraim C. Manansala, ICSC chief data scientist said in a Viber message.

Some Filipinos hesitate to have a solar PV system because they don’t know how to maintain and operate it, he said. “Others may also be unsure about which type of solar PV system to utilize — whether a grid-tied or a hybrid system.

Many homeowners also find the permitting process difficult. “Some local government units have a streamlined process for solar PV installations, while others are not yet prepared for this,” Mr. Manansala said.

Some solar panel installations fail to comply with the requirements of the distribution utility and are not monitored by the government, he added.

“Regulatory oversight including monitoring by distribution utilities and the government, or installation compliance requirements for renewable energy certificate meters may be challenging for some consumers, leaving them disincentivized to register and install solar PV systems,” Mr. Manansala said.

“Addressing these challenges will require collaboration between diverse stakeholders including government agencies, distribution utilities and consumers,” he added. — Ashley Erika O. Jose, Reporter

The Bangko Sentral ng Pilipinas (BSP) may be compelled to resume monetary tightening next month to mitigate inflationary pressures, although a likely pause by the US Federal Reserve could ease the pressure on the BSP to hike further, analysts said. 

Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., said there are more upside risks to inflation such as rising oil prices due to heightened geopolitical tensions in the Middle East.

“(We) may need more (rate) hikes to suppress inflation,” he said in a Viber message.   

GlobalSource Partners Country Analyst Diwa C. Guinigundo said inflation’s upward trend may continue after the spike seen in August and September, as well as higher electricity rates, transport fares, and wages.

“On top of that, the latest forecasts of the BSP for the next two years are uncomfortably above the midpoint of the official (2-4%) inflation target, something that could upset inflation expectations,” he said in a Viber message.

“With the BSP’s suggestive forward guidance, it looks like the BSP is set to resume tightening monetary policy. To me, that is most appropriate,” he added.

BSP Governor Eli M. Remolona, Jr. earlier said he is not ruling out a 25-basis-point (bp) rate hike at its Nov. 16 meeting, after inflation accelerated for a second straight month in September to 6.1%.

September marked the 18^th straight month that inflation exceeded the central bank’s 2-4% target. Year to date, inflation averaged 6.6%.   

The BSP sees average inflation at 5.8% this year, before declining to 3.5% in 2024 and 3.4% in 2025.   

Mr. Remolona has also hinted at the possibility of an off-cycle rate hike, but the BSP still needs to review the latest data before making a policy decision.

China Banking Corp. Chief Economist Domini S. Velasquez said they have raised their average inflation forecast to 5.9% for 2023, slightly higher than the BSP’s projection.

“We do think there is an increasing chance that BSP will hike its policy rate if the Fed hikes once more to keep interest rate differentials stable,” Ms. Velasquez said.   

The US Federal Reserve’s next policy meeting is scheduled for Nov. 2. The Fed earlier signaled it would keep rates higher for longer, even as it kept the target Fed fund rate unchanged at 5.25-5.5% last month.   

“However, we maintain our base scenario that there is less of a need to hike interest rates further given that the BSP has probably done enough with the cumulative rate hikes previously. Moreover, most of the recent shocks are supply side in nature,” Ms. Velasquez said.   

The Monetary Board has kept the key interest rate unchanged at a near 16-year high of 6.25%. This was after hiking borrowing costs by 425 basis points from May 2022 to March 2023.   

University of the Philippines Los Baños Senior Lecturer of Economics Enrico P. Villanueva said the BSP would consider a rate hike if the October inflation is considerably faster.

“The BSP is also conscious of growth impact and should consider lags in impact of previous rate hikes,” he said in a text message.   

The statistics agency will release the October inflation data on Nov. 7, and the third-quarter GDP data on Nov. 9.   

To mitigate the volatility in the foreign exchange market and manage dollar reserves more efficiently, Mr. Ravelas said the BSP can use advanced data analytics and artificial intelligence. This would help reduce currency risks and stabilize exchange rates.   

At a press briefing on Friday, Richard Yorke, head of global corporate and investment banking for Asia Pacific at MUFG Bank, said it may be the end of the tightening cycle in the United States.

“We are waiting for the light at the end of the tunnel in terms of how far interest rates will rise. It looks like we’re getting to the end of the rising cycle. So, we are seeing a slow pick up in terms of confidence (from our clients) in making (investment) decisions,” he said.   

However, Marie Diana Lynn Coronel-Singson, deputy country head at MUFG in Manila, said growth and inflation remain major concerns in the Philippines.   

“Historically, the BSP has somehow followed more or less how the Fed moves. But the BSP will have to look at a lot of factors in the Philippines,” she said.   

But despite a tighter interest rate environment, the MUFG executives said they still see strong economic growth in the Philippines amid new investment initiatives and business opportunities in the country.   

Mr. Guinigundo said that resuming monetary tightening could compromise economic growth.   

“Monetary policy can manage demand pressure which remains strong as the economy continues to grow. This is indicated by the elevated reading on core inflation,” he said.   

Core inflation, which excludes volatile prices of food and fuel, further eased to 5.9% year on year in September, lower than 6.1% seen in August. Year to date, core inflation averaged 7.2%.   

Meanwhile, the Philippine economy grew by 4.3% in the second quarter, much weaker than 6.4% in the first quarter and 7.5% in the second quarter a year ago.

In the first half, GDP growth averaged 5.3%, still below the government’s 6-7% target for 2023. — By Keisha B. Ta-asan, Reporter

Finance Secretary Benjamin E. Diokno on Thursday invited Saudi investors to consider opportunities in the Philippines’ Maharlika Investment Fund (MIF) and Islamic finance, assuring them of the safety, transparency, and responsible management of their investments.

“Safeguarding the fund and your investments is a top priority,” Mr. Diokno told top Saudi business leaders during a roundtable meeting in Riyadh, Saudi Arabia.

President Ferdinand R. Marcos, Jr. expects the country’s first sovereign wealth fund to start operating by yearend, describing it on Thursday as still “a good one” after suspending it to supposedly improve its organizational structure.

Mr. Diokno said financial reporting will follow international standards.

“The Maharlika Investment Fund is founded on the Santiago Principles reflecting appropriate governance and accountability mechanisms and the conduct of sound and prudent investment practices by sovereign wealth funds,” he told Saudi investors.

“There will be three layers of audit based on law, by an internal auditor, a third-party external auditor, and a supreme audit agency independent of the government,” he added.

The MIF aims to boost the country’s growth. It is expected to help speed up the execution of some 197 key infrastructure projects valued at about USD 153 billion.

“The infrastructure flagship projects focus on upgrading physical and digital connectivity, transport, agriculture, health, energy, water, and climate resilience,” Mr. Diokno said. “These projects offer high rates of return and large socioeconomic impact.”

For his part, House Speaker Martin G. Romualdez floated opportunities for funding infrastructure projects in the Bangsamoro Autonomous Region in Muslim Mindanao.

These projects include a PHP 10.19 billion hydromechanical and electro-mechanical rehabilitation of hydroelectric power plants in Lanao del Norte and the Mindanao Railway Project.

Appealing to their support for fellow Muslims, Mr. Diokno also sought investment from Saudi business leaders for the Philippines’ Islamic financing sector.

Last month, Mr. Diokno said that the government would issue $1 billion worth of “sukuk” or Sharia-compliant bonds before yearend, which will usher in the Philippines’ expansion towards Islamic financing. — M.J.B. Poliarco