Sona promises: Has Aquino cut poverty incidence by half?

A general view shows a large slum area in front of skyscrapers in the distance, in a suburb of Manila. AFP FILE PHOTO

As President Aquino promised in previous iterations of the State of the Nation Address (Sona), the government is quite optimistic that the poverty rate will be slashed by half by the middle of next year, before the turnover to the next administration.

Under the updated 2011-2016 Philippine Development Plan, the government aims to cut the incidence of “multidimensional poverty” to 16 to 18 percent by the end of the Aquino administration, from 28.2 percent in 2008.

The government has been banking on the trickle-down effect from the robust economic growth being enjoyed by the country reaching the poor and eventually improving their lot.

READ: Poverty reduction under P-Noy

Highest in 40 years

The Aquino administration has been trumpeting the country’s economic gains in the past five years. Socioeconomic Planning Secretary Arsenio M. Balisacan, the government’s chief economist, has noted that the average annual growth rate of 6.3 percent from 2010 to 2014 was the highest five-year average during the past 40 years.

If the economy posts a gross domestic product (GDP) growth of at least 7 percent this year, the six-year average would be the fastest since the 1950s, said Balisacan, who is also the director general of the National Economic and Development Authority (Neda).

The Philippines early this month also received its 22nd positive rating overall from top global debt watchers since the Aquino administration has been steering economic and political reforms toward further easing the way business is done in the country.

The Japan Credit Rating Agency on July 6 raised the country’s credit score to BBB+ from BBB, the highest the Philippines has ever received from any major international debt agency, and just one notch below the minimum in the “A” category sovereign rating.

BACKSTORY: PH credit rating raised to BBB+

Credit ratings are a measure of a country’s creditworthiness. As the stability of state finances is also related to a country’s performance, credit scores serve as a proxy grade for the economy. It is bound to bring in more foreign capital and funds that countries with noninvestment grade status are hard put to attract.

A better economy means more jobs, hence higher incomes for households.

Clear trajectory

The Philippines “has established a clear trajectory toward growth that is more inclusive,” and this growth momentum could be sustained if economic reforms continue, said Rogier van den Brink, the lead economist at the World Bank’s Philippine office.

“About 20 or 30 years ago, the stories that we often heard or read about the Philippines were all about boom and bust cycles related to macroeconomic instability. Real growth was low, inflation rates were high and at some point double-digit, the current account balance was negative, budget deficits were high, and national government debt soaring,” noted the World Bank economist.

In recent years, however, such issues are no longer major concerns, Van den Brink said.

“Real growth has been ranging 5 to 7 percent, prices are stable, current account has been registering surpluses and the country’s finances are stronger than ever—budget deficits are low and government debt measured against GDP is going down,” he said.

READ: World Bank: Philippines can end poverty within a generation

He also noted that “the reduction in poverty incidence between the first half of 2012 and 2013 indicates that growth is becoming more inclusive.”

“The 2013 Annual Poverty Indicators Survey suggests that real income of the bottom 20 percent grew faster than the rest of the population,” he said.

The World Bank economist also noted that the robust economic growth being enjoyed by the country is now more and more reflected in the number of jobs being created, noting how the unemployment rate dropped to 6 percent in October last year, the lowest in almost a decade.

Unemployment easing

The latest Labor Force Survey released by the Philippine Statistics Authority (PSA) last month showed that the unemployment rate eased to 6.4 percent in April, from 7 percent a year ago.

According to the Neda, 495,000 Filipinos obtained employment between April last year and April this year, hence bringing down to 2.7 million those who remain unemployed.

BACKSTORY: Jobless, underemployment rates drop

The underemployment rate also improved to 17.8 percent in April from 18.2 percent a year ago, which means 44,000 Filipinos found additional work in between the one-year period to reduce the number of underemployed to seven million.

The underemployed are “employed persons who express the desire to have additional hours of work in their present job, or to have additional job, or to have a new job with longer working hours,” according to the PSA.

‘Sugar-coated’ reporting

Other economists and analysts, however, said the government’s reporting of the employment situation was sugar-coated.

The unemployment rate indeed declined in April, but only because the labor participation rate fell to 64.6 percent from 65.2 percent a year ago, said economist Victor A. Abola of the University of Asia and the Pacific.

“This represents close to 400,000 less entrants to the labor force than usual,” Abola explained.

“Net new jobs created over the one-year period were weak at 495,000, about half of what is required just to meet new entrants which the World Bank estimates at 1.15 million per year,” he added.

The Ibon Foundation think tank said that “the few jobs created during the first quarter of the year are wholly part-time, low-wage and insecure.”

BACKSTORY: 11.4M families remain poor–SWS poll

“The increase in part-time employment even occurred amid losses in full-time work… [T]hese are clear signs of an increasingly distorted economy that has become less able to provide secure jobs with decent pay,” Ibon added.

“[T]he 495,000 increase in the number of employed consists of a 544,000 increase in informal work to 15.5 million, less the 137,000 decrease in the number of full-time work to 22.8 million,” it noted.

“Job generation of wholly informal work and a reduction in the number of full-time work indicates a deterioration in the overall quality of work. Informal work or jobs worked less than 40 hours a week are commonly low-paying, unstable and lacking of benefits accorded to regular workers,” it said.

Poverty will remain high

Finally, a special report titled “An outlook for key emerging Asian markets” released this month by the Economist Intelligence Unit (EIU) highlighted the fact that despite the faster economic growth being enjoyed during the past few years, the poverty rate in the Philippines would remain high as the gap between the poor and the rich continues to widen.

By 2019, “the Philippines will remain one of Southeast Asia’s poorest economies, with a lower level of GDP per head than the majority of the region’s other major economies,” the EIU said.

According to the EIU, the Philippines remains a “small market” despite a medium-sized population of about 100 million, as the GDP per head or value of the economy divided by the population stands at only $2,843 at market exchange rates.

READ: Poverty to linger despite robust growth

“GDP per head will continue to rise in 2015 [to] 2019, reaching $4,549 at market exchange rates by the end of the forecast period,” the EIU said, as the economy is seen expanding to a value of $493.2 billion.

Despite robust growth and rising average income per capita, poor Filipinos may be left behind and they would not feel the gains from a fast-expanding economy, according to the EIU.

“The Philippine economy will also remain marked by wide inequalities of income, and the disparity between the richest and poorest households will stay particularly acute. Consequently, large numbers of Filipinos will continue to live in poverty,” the report said.

“Amid sustained strong GDP growth from 2012, the rural poor will benefit only to the extent that the government directs its spending toward improving the quality of essential services, such as education, health care and transport,” it said.

Conditional cash transfer

The EIU noted that government transfers, such as in the conditional cash transfer (CCT) program, which requires parents to send their children to school and have regular health checks in exchange for cash handouts, have facilitated growth in the private consumption of lower-income brackets in recent years.

The EIU report nonetheless sees a growing middle class further boosting consumer spending.

“Among the more affluent middle class, a number of trends may influence domestic demand and cause it to strengthen. The liberalization of sectors such as retail and telecommunications should lower prices, improve quality and widen choice. Strong inflows of remittances from Filipinos working abroad, relatively low interest rates and stronger job growth have buoyed consumer expenditure,” it said.

BACKSTORY: Aquino: 2.5M Filipinos able to improve lives via CCT program

“Furthermore, banks are moving away from their traditional areas of activity toward an increasing emphasis on retail financial products, such as loans for housing and cars, and debit and credit cards; this trend will extend consumer opportunities. Growth in credit-card use, in particular, has accelerated strongly in recent years,” it added.

“Although poverty will remain a problem, continuing healthy rates of economic expansion in 2015 to 2019 will also benefit the poorer segments of the population,” the EIU said.

On track for MDGs

Government nonetheless remains confident that poverty will be further reduced this year until the end of the Aquino administration.

In a report submitted to the United Nations Economic and Social Council in April, the government said “there is a medium probability that the incidence of income poverty will be reduced by half in 2015.”

“The Philippines is also likely to meet its target of universal access to primary education, as greater resources are being allocated to the education sector to address backlogs in terms of classrooms, teachers and books,” read the summary of the country report.

The government report also claimed that the Philippines appears to be “on track” to meet the following Millennium Development Goals (MDGs): Providing universal access to primary education; providing educational opportunities for girls; reducing infant and under-five mortality; reversing the incidence of malaria; increasing tuberculosis detection and cure rates; and increasing the proportion of households with access to safe water supply.

READ: 2015 MDG poverty reduction goal may be met

However, the report admitted that the country is “lagging behind” in six areas of the MDGs: Poverty and elementary education, in terms of completion rate; gender equality, as regards women’s political participation, and the fact that boys are at a disadvantage in terms of participation in elementary- and secondary-level education; maternal mortality; access to reproductive health care; and HIV/AIDS.

The government cited in its report to the UN the Aquino administration’s centerpiece Pantawid Pamilyang Pilipino Program (4Ps) using the conditional cash transfer mechanism as the cornerstone of the strategy to fight poverty and attain the Millennium Development Goals.

It said the 4Ps was being implemented in 144 cities and 1,483 municipalities in 80 provinces, where a total of 4,455,116 households are enrolled, as of the end of December 2014.

4Ps in top 5

Meanwhile, a World Bank report, “The State of Social Safety Nets 2015,” cited the 4Ps as among the top five social safety net programs in the world, with a total of 19 million beneficiaries, or about a fifth of the population.

“Evidence from Indonesia and the Philippines shows that cash transfer programs increased prenatal and postnatal care, regular age-appropriate weighing, and facility-based deliveries for pregnant women and new mothers,” the World Bank said.

READ: Aquino to 4Ps graduates: “Every attack against me was worth it”

According to the World Bank, the 4Ps also improved children’s access to some key health care services, kept older children in school, increased households’ investments in education, and discouraged dependency or spending more on vice goods, such as alcohol.

“Pantawid Pamilya is reaching most of its key objectives. The impacts found through this study are comparable to the levels of impact found in other CCT programs around the world at this stage of program maturity, particularly in terms of the program’s achievements in improved use of health services and school enrollment,” the World Bank said.