World Bank sees fall in RP exports, remittances

The World Bank said impact of the global slowdown on the country would be felt most in terms of its exports and remittance inflows, prompting the lender to further cut its growth forecast.

In a new report, the Washington-based lender said Philippine exports would contract by 1 percent this year before growing by 1.5 percent next year.

Electronics exports have already taken a hit but are projected to continue to be under pressure going forward, it said.

“Although the exports-to-GDP ratio has fallen in recent years from 50 in 2000 to 34 today, a single product group, electronics, still commands a significant share of total export [60 percent]. This lack of export diversification, coupled with a specialization in an industry with significant and prolonged cycles, is a major risk for the economy in 2009,” it said.

It also said that remittances from overseas Filipino workers (OFW) are expected to fall sharply this year.

The bank projected 4 percent remittance growth this year, driven mainly by money sent by OFW employed in recession-proof industries and areas.

The lender’s projection is way below the Bangko Sentral ng Pilipinas (BSP) forecast of between 6 percent and 8 percent this year.

For next year, the World Bank sees remittances rising 7.5 percent.

“[The] downside risk to that projection is significant and would have important implication for the economy. In particular, if the global economic slowdown is more protracted than expected, the likelihood of cuts in OFW increases. Remittances are also affected by macroeconomic prospects and investment opportunities at home; this motive for remittance might become weaker as the Philippines economy, and the property sector in particular, slow down,” the lender said.

In the first 11 months, remittances reached $15.02 billion, or 15.1 percent higher than in the same period in 2007.

Remittances account for more than 10 percent of gross domestic product and has been an important driver for both external financing and the overall economy.

With the exports and OFW remittance slowdown, the World Bank predicted that GDP would grow 3 percent this year, lower than its projection of 6.1 percent made in November.

Philippine economic managers expect GDP to expand between 3.7 percent and 4.7 percent this year. For next year, the lender placed GDP growth at 4.1 percent.

New taxes not enough

For this year, the World Bank said the new tax measures the government is pushing to raise more revenues would be insufficient to offset the projected decline in collections.

Finance Secretary Margarito Teves recently urged Congress to immediately enact legislative measures that would beef up collections amid the global economic downturn.

The new tax measures include the fiscal incentives rationalization bill, the simplified net income taxation scheme (SNITS), and the tobacco excise tax rationalization bill. The first reduces the amount and magnitude of tax perks for investors, the second tightens the noose on self-employed and professionals, while the third raises the tax rate on sin products.

“Under the best case scenario, wherein all these bills are signed into law in early 2009 and made effective by mid-year, the total revenue impact is estimated at 0.3 percent of GDP, still lower than the projected decline of 0.5 percent to 0.7 percent of GDP,” the World Bank said.

The projected downturn in the tax ratio is due to a combination of one-off factors inflating 2008 collection, tax policy measures that will reduce the 2009 tax base, and a slowing economy.

The lender said the reduction of the corporate income tax and the higher personal exemptions for all income taxpayers could cost between 0.5 percent and 0.7 percent of GDP, which is the amount of goods and services produced locally.

The slowdown in economic growth that started in 2008 will negatively impact 2009 tax collection as some large tax sources have lagged and have historically fallen more quickly than economic activity during downturns, it said.

In the fourth quarter of 2008, expansion may have slowed to 3.6 percent, putting the full-year growth at 4.3 percent, the lender said. “Given projected slower private domestic and external demand, growth in fourth quarter should be buoyed by public consumption and investment,” it said. –Darwin G. Amojelar, Reporter, Manila Times