The World Bank has once again cut its 2017 growth forecast for the Philippines, citing delays in the implementation of the government’s “Build Build Build” program.
“In 2017, the economy is projected to expand at a slightly slower pace than 2016, at 6.6 percent,” the Washington-based lender said in an update of its East Asia and Pacific Economic report that was released on Wednesday.
“The delay in the anticipated push of the planned government infrastructure program has been contributing to the moderation of fixed capital formation growth, softening the growth prospect for the year,” it added.
This was the second downward adjustment for the year from the World Bank, which in July trimmed its Philippine growth forecast to 6.8 percent from 6.9 percent on account of a first quarter slowdown.
The latest revision, which is lower than the actual gross domestic product growth of 6.9 percent last year, remains within the government’s 6.5 percent to 7.5 percent target.
The Philippine economy grew by 6.5 percent in the second quarter, picking up from the 6.4 percent recorded in the first three months of the year.
Year to date growth, at 6.4 percent, remains below target.
The Duterte government has been touting the “Build Build Build” program as the answer to the country’s infrastructure needs, with spending on flagship projects targeted to reach P8-P9 trillion from 2017 to 2022.
These “high-impact” projects are expected to boost the economy’s productive capacity, raise workers’ incomes and strengthen the investment climate.
Funding for these projects remains a concern, however, and officials have warned that the project list could be trimmed if Congress fails to approve proposed tax reforms.
Nevertheless, the World Bank said the country’s medium-term outlook remained positive, anchored in growth in the Philippines’ main trading partners and elevated imports – the latter including inputs necessary for the infrastructure program.
“As the public infrastructure program gains traction, capital outlays and construction activities are expected to rise. Consumption growth is expected to remain firm contingent on sustained remittances and expanding credit contributing to improving income levels,” it said.
The multilateral institution added that mid-term elections in 2019 would likely boost domestic activities as early as the latter half of 2018.
With this, it said growth in 2018 and 2019 could hit 6.7 percent, within the government’s 7 percent to 8 percent growth target for next year up to 2022.
The World Bank also said the pace of poverty reduction could slow in the face of slightly lower overall growth. Gains, however, will continue as the economy proceeds with a structural transformation.
“Increased spending in infrastructure would generate construction jobs that are expected to boost poverty reduction,” it pointed out.
“Sustained investment in physical infrastructure and human capital development could create quality employment needed to safeguard the country’s progress on delivering inclusive growth.”
The lender said more inclusive growth also required the government’s commitment to reforms that would promote competition in key sectors, secure property rights, and improve the investment climate.
Faster-than-expected interest rate hikes in advanced economies, meanwhile, remains a source of external risk.
“Expectations of international interest rate tightening may lead to renewed capital outfows and volatility in the foreign exchange market,” the World Bank said.
Domestically, it warned that growth could slow down if the government was unable to deliver on its planned infrastructure program.
Complementary reforms to address budget execution and implementation bottlenecks and to ensure high quality of spending are needed, it said.
“Maintaining fiscal sustainability over the medium-term will also depend on the success of the priority tax reforms,” the World Bank added.