A UNITED Nations body said consumption and investments will support the Philippine economy to expand by 6.7 percent this year, well within the government’s target.
The government has set a target of between 6.5 percent and 7.5 percent growth in gross domestic product (GDP) for 2014.
“Annual growth is projected to remain strong at 6.7 percent in 2014, driven by private consumption and investment,” according to the newly released Economic and Social Survey of Asia and the Pacific 2014, the annual flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific (Unescap).
The Unescap report said the country’s economic growth has been supported by strong domestic demand and increased investor confidence, as evidenced by the country’s robust 7.2-percent expansion in 2013.
It also noted that private consumption benefited from employment growth in services and construction, as well as from steady overseas workers’ remittances.
Investment still lagging
Meanwhile, fixed investment improved last year as the investment-to-GDP ratio stood at about 20 percent, the report said, but suggested that investment in the country was still falling short of its potential.
“Compared to other regional peers, there is still ample room to raise investment,” it said.
In terms of foreign direct investment (FDI) inflows to the country, the Unescap report said the level remains relatively low compared with that in other countries in the region.
Despite this, the report said the country’s ratings upgrade to an investment grade from major credit ratings agencies in 2013 should bring improvement to FDI inflows.
Room for fiscal improvement
At the same time, the report acknowledged that there is still room for improvement for the government’s fiscal performance.
“Taking into account the economic structure of the Philippines, the Escap analysis suggests that tax revenue could be raised by about 11 percent. Among others, policies to enhance domestic resource mobilization include rationalizing the tax system to create a larger tax base, tackling tax evasion and tax fraud, and strengthening tax administration. The government is already addressing some of these issues,” it said.
The Unescap report said greater fiscal space would allow sustainable financing of needed development expenditures, including those in education, health and social protection.
“Several government initiatives, including the K-12 education program, universal healthcare and expansion of the conditional cash transfer program, are already being partly financed with interest savings from prudent debt management,” it said.
“The government is also seeking to increase infrastructure spending to 5 percent of GDP by 2016, primarily from mobilizing additional revenue,” the report added.