TOP multilateral lenders, the World Bank and its Asian counterpart, the Asian Development Bank, are both confident that the Philippine economy will continue to grow and attain the government’s 6 to 7 percent target this year.
There are, of course, a few imponderables along the way—the lingering effect of El Niño, external economic factors such as the slowdown of remittances from oil-exporting countries, slower growth of large emerging economies like China, uneven recovery among high-income economies, particularly such major trade partners as Japan, the US, and the Euro zone, and lower net exports due to weak overall external demand.
China is a critical factor. Developments in China, the World Bank thinks, can affect the Philippines negatively, dampen expectations in the local financial markets, and hold back Chinese investment.
For trade, around 13 percent of Philippines’ total exports goes to China which is also the fifth largest source of tourist inflow. Last year, half-a-million Chinese tourist came to the Philippines, contributing P10 billion in tourism revenue.
Naturally, exports to China and receipts from Chinese tourists could be affected “should China’s growth edge lower than expected,” notes the World Bank.
On the domestic front, the ADB thinks that private consumption and buoyant investment will be the main growth driver this year. “The outlook for the Philippine economy remains strong amid buoyant investment and domestic consumption,” it noted
But, then, consumption growth could be impeded if remittances slowed down, especially from oil exporting countries.
Cash remittances had recorded 7.2 percent growth in 2014. But the rate of growth slowed down to 4.6 percent in 2015 when some 1.5 million overseas Filipino workers in the Middle East held only temporary contracts and for some of them, especially those working in the construction sector, continuation of contracts, the World Bank noted, “may be more uncertain in the future.”
However, the overall outlook is promising; the World Bank and the ADB both expect the Philippine economy that had expanded 5.8 percent in 2015 to expand 6.4 percent by the end of this year.
While that is reassuring, measures are, of course, needed to aid and nurture the momentum of growth; for example, institutional reforms and accelerated implementation of public-private partnership projects. According to the World Bank analysis, which is contained in the economic update for the Philippines it issued in April, investments will likely support growth as implementation of key private sectors, budget, and public-private partnership (PPP) projects accelerate. “Growth prospects for the Philippines remain positive due to its favorable macroeconomic and policy environment. The country continues to benefit from solid macroeconomic fundamentals. This provides the country with the flexibility to use a range of policy tools to withstand shocks from the weaker global environment,” it stated
What is needed now, according to the World Bank, is to consolidate the reforms made, embark on the next set of reforms and move ahead at full speed.
In the short-term, deepening reforms in budget execution will allow the country to use its growing fiscal space to increase investments in both human and physical capital, with positive contributions to near-term growth and quality of jobs.
Over the medium-term, accelerated structural reforms are needed to enhance competition in sectors with high impact on jobs (such as rice, shipping, and telecoms), securing property rights through more systematic and administrative adjudication of land rights, and simplifying business regulations to encourage the growth of firms of all sizes, while increasing tax effort and reforming the budget execution system in order to sustainably ramp up public investments in infrastructure and social services.
In all these, priority is needed in Mindanao, where decades of conflict and weak, Manila-centric policies have kept it from reaching its potential.
To accelerate reforms in the future, the World Bank thinks, the government, business, labor, and civil society need to work closely together to support a package of reforms that will help the country move full speed ahead to create more and better jobs.
According to ADB, if successfully implemented, the new government’s development agenda to step up spending on infrastructure, implement tax reforms, and cut through red tape will sustain high growth rates and increase job creation.
It said a continuation of the strong growth would hinge on advancing the reform agenda, which includes measures to address infrastructure bottlenecks, stronger efforts to develop rural and regional areas, and enhancing transparency and accountability in government.