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By Darwin G. Amojelar Reporter
THE Asian Development Bank (ADB)
on Wednesday kept its economic growth forecast for the Philippines
this year on the back of rising fuel prices and weak external
demand.
In its Asian Development Outlook
2008, the Manila-head-quartered lender projected that the domestic
economy as measured by the country’s gross domestic product (GDP)
will expand at a slower pace to 6 percent this year, the same as its
September forecast.
This is still lower than the 7.3
percent expansion last year and the government’s target between
6.1 percent and 7 percent this year.
The ADB said private consumption
will remain a major growth driver this year. However, higher food
and fuel prices will force consumers to reduce their discretionary
spending.
Services sector growth is
expected to decline by a little over 1 percentage point to 7.5
percent in 2008, as retailing and finance are likely to slacken,
while agriculture is likely to grow 4 percent.
“The rapid rise in overseas
remittances, which bolstered private consumption in 2007, is also
expected to slacken as the global economic environment softens,”
the report said.
Also affecting the country’s
economic output, ADB said is the expected decline in exports,
particularly the electronic sector.
“Net exports are expected to
contract in 2008 and slow GDP growth,” the report said adding that
the country’s shipments abroad are likely to grow 7.5 percent this
year and 10.4 percent in 2009.
For next year, the country’s
GDP is expected to grow 6.2 percent, lower than the government’s
target of 6.4 percent to 7.1 percent.
The country’s inflation is
projected to accelerate to 4 percent this year and 2.8 percent next
year.
The ADB also said that despite
the huge budget allocation, the ratio of public investment to GDP
still remains low at 2.8 percent.
The regional lender said private
investment in buildings is expected to expand, but investment in the
manufacturing sector is likely to remain weak due to nagging
problems in the domestic environment. “Foreign direct investment,
an important source of funding and technology for manufacturing, is
low compared with countries such as Malaysia and Thailand.
Manufacturing output growth is likely to ease to about 3 percent in
view of the softer external demand,” the ADB said.
The lender also warned of the
slippage in fiscal reform as the main domestic downside risk to the
Philippine growth forecast. Last year, the share of tax revenues to
GDP edged up to 14 percent from 12.4 percent in 2004.
“This momentum needs to be
maintained if the government is to sustain infrastructure spending
and keep its budget from sliding back into deficit, with the
associated pitfalls of a rising country risk premium, higher
interest rates and weaker currency,” the ADB said.
Tom Crouch, ADB deputy director
general for Southeast Asia, said the country’s fiscal
consolidation is very much on track.
“We are fully expecting the
government to balance the budget this year. From our perspective the
most important part is the credibility [of the economic
managers],” said the former Philippine country manager for the ADB.
“There is no absolute reason
why 2008 must be the year [for] a fiscal balance. If there are very
sound reasons for increasing the expenditure in public
infrastructure and the social sector as long as debt occurred in
parallel with continuous upward trend in tax revenues for example,
then there is no reason to balance the budget and maybe encourage
larger deficit than planned in 2008,” he added.
At present, the country’s
budget deficit is about 0.9 percent of its GDP.
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