The local economy appears to continue gaining momentum as consumption and spending expand further, but banking giant HSBC urged the government to do more to attract investment, particularly in infrastructure—“the bedrock of the Philippines’ growth outlook over the next decade.”
The UK bank stressed that the Philippines’ public-private partnership (PPP) projects need to be accelerated, while more efforts must be taken to counter the deceleration in investment right before an election due to uncertainty surrounding the outcome.
The country is due to elect a new government in May this year.
“The low level of investment in the Philippines remains a concern, even if infrastructure spending has increased as of late,” HSBC said in its Asian Economic Quarterly report.
‘Less vulnerable than others’
In the report, HSBC described the Philippine economy as relatively less vulnerable to the weak external factors weighing down growth in much of the broader region.
“The domestic economy is firing on several cylinders, namely private consumption, government spending, and private investment, shrugging off a drag from exports,” it said.
Consumer spending in the country is supported by remittance inflows, which continue to expand at robust levels in peso terms, despite some recent volatility in US dollar growth, HSBC said.
“Moreover, private consumption is buttressed by better employment opportunities, partly on the back of government spending,” it said.
As for trade, it sees data pointing to a mixed bag, with exports having plummeted because of external weakness, while imports have surged thanks to imports of capital goods needed for infrastructure.
The services sector, particularly business processing and outsourcing (BPO), is seen as an important export industry that should provide sustainable foreign exchange earnings for the Philippines, it added.
However, even as HSBC observed that government expenditure has picked up speed—growing 19 percent year-on-year in the third quarter of 2015 due to increased infrastructure spending, the bank also noted the probability of missed targets.
“We have said for some time that the Philippines has the unique problem of not spending its funds quickly enough—and the government looks set to miss the targeted 2 percent budget deficit target in both 2015 and 2016. We see infrastructure spending as the bedrock of the Philippines’ growth outlook over the next decade,” it said.
Growth seen below govt forecast
Taking note of these indicators, HSBC said the economy is poised to grow 5.7 percent this year, an upward adjustment from its previous forecast of 5.6 percent, yet below the government’s target range of 7 percent to 8 percent for gross domestic product (GDP) this year.
For the government to reach its growth target, spending on infrastructure needs to be sustained for longer, the bank stressed.
‘Sluggish at best’
The bank said that while the PPP initiative has proven to work, it has been sluggish at best.
Since 2010, there have only been 10 PPP projects out of at total of 55 projects in the pipeline, it said.
The National Economic and Development Authority Board has approved 16 projects, while the remainder are in various pre-approval stages.
Citing an evidence of a sluggish PPP program, HSBC mentioned one recent project that was cancelled by the operator because of delays on the part of the government.
In November last year, Megawide World Citi Consortium, Inc. terminated its contract with the government to rehabilitate the Philippine Orthopedic Center, which is originally targeted to be completed in 2017.
Furthermore, HSBC said key shortages such as electricity and transport across the country have yet to be addressed.
“This would drag down the economy’s competitiveness, as well as output potential. Coupled with this, the rapid increase of the population over the coming decades means that the Philippines must generate new jobs to productively absorb its potential labor force,” it added.