The Philippines should pursue more structural reforms and invest further in human and physical capital to sustain economic growth above 6 percent in the medium term, the World Bank said.
In its East Asia Pacific Economic Update released on Monday, the Washington-based lender said the Philippines is positioned to remain on a high-growth path despite weak, but recovering, external environment and the impact of natural disasters.
“Strong macroeconomic fundamentals, along with sound fiscal and monetary policies, would continue to support growth in the near term, while further structural reforms would allow the country to sustain growth at above 6 percent in the medium term,” it said.
The World Bank said building on this achievement through deeper structural reforms would allow the country to sustain its current high gross domestic product (GDP) growth rate, achieve more inclusive growth, create more and better jobs, and reduce poverty at a much faster rate.
These key structural reforms include protecting property rights, promoting more competition, and simplifying regulations, it said.
Increase spending, revenue sources
In addition, the lender said the government’s planned doubling of infrastructure spending to 5 percent of GDP, and significant increases in health and education spending, require new sources of revenues.
“This can be achieved through a package of tax policy and administrative reforms. There is scope to increase tax revenues, by, for example, broadening the base and making the tax system simpler, more efficient, and more equitable, while simultaneously lowering certain tax rates to increase the political feasibility of such a package,” it said.
The World Bank said accelerating the current reform momentum would help the country yield additional tax revenues to create the fiscal space needed to enhance growth in the coming years.
Irreversible growth path
“With further economic reforms, especially in areas that would have more impact on the lives of the poor, the government can help put the country on an irreversible path of inclusive growth and meet the jobs challenge,” it added.
The lender maintained its growth projections for the local economy first stated in its Philippine Economic Update released in August.
The World Bank said its baseline growth projections are being revised downward from 6.6 percent to 6.4 percent for 2014 and from 6.9 to 6.7 percent for 2015.
The lender pointed to the economy’s slow start in the first quarter, weaker government spending in the second quarter, and monetary policy tightening in the past months as reasons for its downward forecast revisions.
Strong domestic demand
Real GDP growth in the country accelerated to 6.4 percent in the second quarter of 2014, from 5.6 percent in the first quarter, bringing first-half growth to 6 percent.
The World Bank said strong domestic demand will continue to drive overall growth, but growth will depend heavily on the ability of the government to ramp up spending.
Private consumption is expected to contribute more than half of GDP growth, supported by a strong inflow of remittances and consumer confidence, it said.
“Ongoing and recently awarded public-private partnership projects equivalent to around 1.5 percent of GDP are also new sources of growth. An acceleration of reconstruction spending can support growth at above 6 percent,” the lender added.