Gloria’s legacy 5% growth not enough for RP — WB

For the country to catch up with its rich neighbors and for the level of poverty to be reduced, the economy would have to consistently achieve growth of from seven to eight percent a year, World Bank (WB) Philippines country director Bert Hofman said yesterday.

Hofman, speaking before the 13th annual Foreign Correspondents of the Philippines (Focap) conference, said that while the local economy escaped recession which afflicted most countries in Asia, growth of an average of five percent during the term of President Arroyo will not allow the country to catch up with China and its other progressive neighbors.

Hofman noted the local economy, with continued strong remittance growth, a continued fiscal stimulus already planned, including spending on recovery from typhoons “Ondoy” and “Pepeng,” and possibly some effect from election-related spending, could manage growth of around 3.5 percent this year.

Growth in the Philippines over the last decade has been higher than that of the two decades preceding it but average growth of almost five percent has not been enough to make a serious dent in poverty, which today is probably about as high as it was at the start of the last decade, Hofman said.

He said average growth of five percent a year in national income means that income per capita only grew by about three percent per year.

“In recent historical perspective, this is quite respectable, but as current economic managers say, this hardly meets the aspirations of the Philippines. We all like to see the country at income levels comparable to developed countries within a generation. Reaching this goal, or even moving in that direction requires higher growth,” he added.

He said that at the current growth rates that President Arroyo has boasted as the best ever for the economy, the Philippines would be as rich as today’s China in 25 years.

“In roughly half a century from today, it would reach income levels of Malaysia today to become an upper middle income country, and 70 years from now it will reach the $12,000 per capita high income threshold that the World Bank uses for its country classification,” he said.

For comparison, the average high income country currently has a per capita income of $36,000, or more than 20 times the level of the Philippines now, he added.

With five percent per capita growth, it takes a little over four decades to reach high income status and with seven percent per capita income growth the same can be achieved in little over three decades. Moreover, international experience shows that as growth accelerates, fertility and population growth declines, so per capita growth can accelerate more rapidly than gross domestic product growth, Hofman said.

Hofman cited studies that point to the possibility that the country can achieve high growth rates to reach a developed country status provided that the country fully exploits the world economy; it maintains macroeconomic stability; its citizens achieve high rates of saving and investment; it let markets allocate resources; and it has committed, credible, and capable governments. –Daily Tribune