More Media Spin on the Philippine Statistical Bubble Economy

Perhaps in an attempt to recoup lost glory from recent political setbacks from the Pork barrel scam and Typhoon Yolanda debacle, the Philippine government’s PR campaign machinery may be working overtime.

Here is an example of a media spin romanticizing the supposed accomplishments from this government, from Bloomberg

Aquino has achieved this transformation by pruning a record $7 billion budget deficit in 2010 to $2.3 billion in the first nine months of 2013, declaring war on rampant corruption, announcing plans to more than double state spending on public works to $19 billion -- or about 5 percent of GDP -- by 2016, and exploiting Filipinos’ English-language skills to promote industries as diverse as casinos and call centers.

Reference points always matter in framing explanations.

The incumbent Philippine President assumed office in June of 2010, which means this administration has been half responsible for the spike in the government budget- GDP ratio during the same year (red arrow). 

So the article implies, first balloon the deficit, then reduce them and then call them “transformation”. Duh.

Second government spending is part of the calculation of GDP so we have a circular logic at work. A boost in government spending bloats GDP (or the denominator) which diminishes the impact of the budget (numerator) thus a lower budget-gdp ratio. 

Based on the above reasoning all this government has to do is keep throwing money at the Philippine economy for the “transformation” to continue.

And throwing money comes with no cost, no risks of higher future taxes, no risks of increase in debt, and no risks of inflation. There exists an endless pool of money to tap. Free lunch lives!

A far better measure would be to look at the Philippine government budget in nominal peso currency terms

Here is the so-called “transformation” of the administration (data based from National Statistical Coordination Board).

We have nominal deficits above pre-2010 levels as of 2012. This has emerged as the rate of government spending far outpaces tax revenue collection. And to consider, we are supposedly in boom days.

Look at the first chart. Government spending has constantly been rising since 1996 whereas tax revenues has been volatile. So what happens when the statistical economy slows? 

Here is a guess: the so-called “transformation” would mean an explosion of budget deficit. Remember the uptrend in government spending has been constant and even accelerating, whereas tax revenues have been gyrating.

So the current administration needs to keep pumping the debt driven statistical bubble in order to look good.

As a reminder, the above data are from the government which hardly anyone tries to vet.

And of course those deficits has been revealed in the country’s rapidly expanding debt levels based in nominal peso terms. Since 2010 total (foreign and local) debt has grown by over 15%. Data above are from NSCB and the Bureau of Treasury

So while the debt to gdp ratio may seem as moderate, largely due to the puffed up denominator from credit bubble in the property and allied industries and from government spending, seen in the context of debt in nominal terms (not as a ratio) debt levels have been expanding rapidly.

The government has been shifting the debt profile from external to internally generated debt.

So what happens if the statistical economy slows? Here is another guess, as budget deficit explodes so will the debt levels.

As for call centers, here is what the British Philippine Outsourcing says “BPO has been one of the fastest growing sectors in the Philippines in the past 7 years”

2013 minus 2010 equals 3 years. The administration is 3 years old, BPO’s have rapidly been advancing for the last 7 years. Thus attributing the triumph of BPOs to the administration's “exploiting Filipinos’ English-language skills to promote industries as diverse as casinos and call centers” represents a rather hyperbolic claim.

As for casinos while I see the industry as a necessary part of leisure, for many patrons, casino can be a vice. As for how vices can signify a boon to long term productivity to an economy signifies another bizarre allegation.

Besides the domestic casino industry appear to be part of the bubble propagation.

Oh by the way, “transformation” seems as another (this time is different) byword, catchphrase or slogan that gives me goose bumps.

English novelist and author Eric Arthur Blair popularly known for his pen name George Orwell warned us on the perversion of thoughts in “Politics and the English Language”

But if thought corrupts language, language can also corrupt thought.