The government’s economic growth target for the Philippines next year looks ambitious in the face of persistent inflationary pressures, banking giant Standard Chartered Bank said.
“The government maintained its 2015 GDP [gross domestic product]growth target range of 7 to 8 percent in the [2015 proposed] budget. This looks ambitious to us when combined with the central bank’s 2 to 4 percent inflation target for next year,” StanChart said in its Global Research report released on Monday.
While GDP growth is expected to remain solid, higher interest rates are likely to act as a headwind to growth, the bank said.
Further tightening ahead
StanChart predicts a further tightening in the monetary policy of the Bangko Sentral ng Pilipinas (BSP), after the central bank raised its key policy rates by 25 basis points (bps) last week.
It said the central bank’s key policy rates may be up for another increase after the Monetary Board decided on July 31 to increase the benchmark rates for overnight borrowing to 3.75 percent and overnight lending to 5.75 percent.
“Inflationary pressures remain a concern, and we expect the central bank to hike policy rates by [a further]25 bps in 2014,” it said.
Besides inflation, slow government spending is also likely to have an impact on GDP growth, StanChart said. On July 30, President [Benigno] Aquino 3rd and Department of Budget and Management Secretary Florencio Abad announced a 2015 Budget of P2.61 trillion, seeking a 15.1 percent increase over the 2014 budget.
“The challenge will be implementation, as government spending has slowed since September last year,” the bank said.
Cementing a legacy
At the same time, StanChart sees the P2.61-trillion proposed budget as an indication that the government is serious about providing fiscal support for economic growth.
“This is the penultimate budget for the Aquino administration, with presidential and general elections scheduled for May 2016,” it said.
The 2015 proposed budget signals the administration’s intent to cement its legacy, even in light of recent controversies over two government spending programs, the Priority Development Assistance Fund and the Disbursement Accelerated Program, StanChart added.