ACCELERATED government spending and a low inflation rate will support the Philippine economy to expand by 6.5 percent this year but the government must also step up regulatory reforms to sustain the growth, a United Nations agency said.
“The Philippines will be another strong performer in 2015, with growth forecast to expand by 6.5 percent relative to 6.1 percent growth in 2014,” the United Nations Economic and Social Commission for Asia and the Pacific (Unescap) said in its newly released Economic and Social Survey of Asia and the Pacific 2015, the annual flagship publication of the agency.
Unescap’s growth forecast is lower than the government’s 7 percent to 8 percent target for this year.
The report said domestic consumption will remain the main driver of growth, aided further by the fall in global oil prices and continued good performance in the services sector, which is the largest contributor to the economy.
“The services sector will continue to drive growth; in particular, the business process outsourcing sector is expected to generate some $25 billion in revenues by 2016, accounting for a tenth of the economy,” it said.
The UN agency also said the government is likely to expand fiscal spending in the run-up to elections in 2016.
“Government is expected to accelerate spending ahead of the six-month moratorium on project approvals prior to the national election in May 2016,” it stated.
Remittances from some 11 million overseas Filipino workers will also continue to account for a 10th of the economy, it added.
However, it warned that slowing remittance inflows from OFWs can be a major risk for the economy this year.
“Slowing economy of the country’s major trading partners is a major risk. If the countries where migrant workers are based slowed down, it will have an impact in remittances this year and it will contribute to a slowdown of private consumption,” Steve Gui-Diby, economic affairs officer at Unescap, told a press briefing on Thursday.
Going forward, the UN agency said it is important to keep expanding the country’s traditionally weak manufacturing base through regulatory reforms as well as increased public investment.
Unescap also stressed that the government should focus on how to improve the entry of job-generating foreign direct investments (FDI) in the country.
For instance, it said the Philippines has long received far less foreign investment than the size of its economy or labor force would suggest and that even with recent improvements, FDI inflows stood at only $3.9 billion in 2013.
“Restrictions on foreign ownership and other regulatory barriers are often cited as reasons for this situation,” it said.