Philippine economic expansion may quicken under the six-year term of President Duterte, as plans to bolster infrastructure spending and pursue tax reform measures will bode well for more investments, investment bank Nomura said.
GDP is seen rising at an average of 6.7 percent until 2022, much faster than the average 6.2 percent growth expected in the 2010-2016, Nomura said in a report released Thursday.
“In our base case, potential growth rises further to 6.7 percent over the next few years, until 2022 when Duterte’s term ends,” it said. “This assumes that the economy continues along a path of improvement similar to the last few years, with investment spending continuing to rise and boosting productivity growth in the process.”
For this year, growth may hit 6.7 percent, though it is seen decelerating to 6.3 percent next year. But for 2018, the economy may rise 6.5 percent, faster than its previous 6.1 percent estimate, as it expects the proposed reforms of the Duterte administration will already take hold by that time, it said.
“For 2018, we expect more successful infrastructure implementation and business-friendly reforms,” Nomura said. “The key driver of the upgrade remains higher investment spending, which should raise productivity, reduce unemployment further and turn the country’s demographic profile into a distinct regional advantage.”
The Duterte government plans to spend 7 trillion through 2022 on roads, bridges and other infrastructure facilities. Next year, the administration has allotted P890 billion on infrastructure, up from this year’s proposed P632 billion.
The country’s young population will also help fuel growth, it said. With a 101 million population with a median age of 23.5 years, the size of the country’s workforce is set to expand over the next three decades, besting even Vietnam and Indonesia.
Despite the recent political noise, Nomura said there are signs of strong adherence to the 10-point economic agenda that the Duterte administration has drawn and presented to the public in June. These include higher infrastructure spending, lower income taxes, making it easier for businessmen to do business in the country.
“We think the government will likely make steady progress on cutting red tape and corruption, which we view as a credible commitment from Duterte given his track record in promoting good governance in Davao,” it said.
The planned changes are positive for FDI inflows, which are already structurally on the rise, helping generate more jobs and supporting external balances, it said.
Nomura said the main risk stems from domestic politics, specifically an escalation of the campaign against drugs, which could continue to weigh on investor sentiment.
“We are less concerned with the potential for adverse changes to foreign policy. That said, if reforms continue, as we expect, their positive implications for growth are unlikely to be overshadowed by a pickup in political risk premia,” it explained.