MANILA, Philippines – A new research paper by the Philippine Institute for Development Studies (PIDS) cited risks facing the Philippine economy in 2024, including ballooning military and uniformed personnel (MUP) pensions as well as the new strategic investment fund of the Marcos administration called the Maharlika Investment Fund.

In an economic briefing on Thursday, February 15, Dr. Margarita Debuque-Gonzales, a former senior research fellow of PIDS, the government’s policy think-tank, presented the highlights of a new study titled “Macroeconomic Outlook of the Philippines in 2023–2024: Prospects and Perils.” 

The PIDS researchers forecast GDP growth to fall within 5.5-6% this year, while inflation is expected to fall exactly at the government target of 3%. 

But they identified various risks to the economy, especially on the country’s fiscal health. 

MUP pensions

Debuque-Gonzales pointed out that the arrears or unpaid MUP pensions have ballooned to P57 billion as of 2021, and that MUP pensions “typically exceeded the cost of supporting the active military.”

Moreover, because MUP pensions are “automatically indexed” or tied to retirement pay, the MUP salary increases in the past have led to the swelling of such pensions. 

She advised that addressing MUP pensions “could [contribute] to greater fiscal sustainability in the country.” 

EXPLAINER: How generous military pension is pushing Philippines to fiscal collapse

Moreover, she said that “the heart of the debate should be on…who [among the MUP] will bear the brunt of the [fiscal] adjustment and the need for an equitable framework.”

Although there were efforts among government technocrats and some lawmakers to reform MUP pensions, these have been stymied by intense opposition among army and police forces, as well as other MUPs who stand to lose benefits once reforms are enacted.

Mahalika Fund

Apart from MUP pensions, the PIDS researchers also pointed out risks posed by the Maharlika Investment Fund, the new strategic investment fund set up by the Marcos Jr. administration.

While Maharlika can potentially attract new capital into the country, the authors said they wish the fund “will not draw from already scarce state funds, and the government must also ensure that the funding contributions of the [GFIs]…do not fuel uncertainty” and erode the country’s overall financial health.

Debuque-Gonzales also pointed out that Maharlika has “dual” if not “conflicting” goals: “one is to promote socioeconomic development, and another is to make it profitable.” Settling this conflict will be crucial in Maharlika’s success.

The PIDS authors added that Maharlika needs a “credible return benchmark” that the economic managers must craft. However, she emphasized that such benchmark cannot be misused to merely “mask” the fund’s performance in case it performs poorly or is subject to corruption.

Maharlika might also be politicized, and this should be avoided. She said, “the likelihood of [MIF] turning a profit may be higher if investment decisions are kept free of political complexities and patronage.” 

Debuque-Gonzales, who is set to assume a new role as a senior researcher at the Bangko Sentral ng Pilipinas (BSP), said that her “last policy recommendation” as she leaves PIDS is that the Filipino public has a role to play in monitoring the implementation of the Maharlika fund. “You should be the ones monitoring, because this is your fund,” she added.

Earlier, economists at the University of the Philippines similarly flagged risks associated with the Maharlika Investment Fund. In a discussion paper published June 2023, the UP economists said that Maharlika “violates fundamental principles of economics and finance and poses serious risks to the economy and the public sector – notwithstanding its proponents’ good intentions.”

The Maharlika Investment Fund was signed into law by President Ferdinand Marcos Jr. on July 18, 2023, less than 8 months since it was first proposed by lawmakers in the House of Representatives. 

In November 2023, President Marcos appointed businessman Rafael Consing Jr. to be the first president and CEO of the Maharlika Investment Corporation (MIC). Right before Christmas 2023, Marcos completed the 9-member board of directors of the MIC. – Rappler.com

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