World Bank ups Philippine growth forecast to 3.5%

MANILA, Philippines – The World Bank on Monday raised its 2010 economic growth forecast for the Philippines to 3.5% from 3.1% due to a recovering global economy and increased private consumption and public spending.

The World Bank forecast growth of 3.8% in 2011 in its quarterly update for the Southeast Asian nation, which grew 0.9% last year, although it said dry weather was a risk to growth and food production.

“Growth in private consumption is projected to hold up well in 2010,” World Bank senior economist Eric Le Borgne said.

“The rising precautionary savings that dampened spending in 2009 will likely diminish as consumer expectations gradually improve over the next 12 months,” he said in a statement.

The government expects the economy to expand between 2.6% and 3.6% this year as exports recover in step with a mending global economy and as consumer spending is boosted by a national elections in May.

Remittances, a key driver of consumer spending, were likely to remain strong given double-digit growth in the deployment of overseas Filipino workers, the multilateral financial institution said.

However, poor Filipinos could be further affected as a dry spell caused by the El Nino weather pattern hits food output.

“A worse-than-expected El Nino could pose serious risks to the country’s growth prospects and trigger larger increases in hunger incidence,” Le Borgne said.

Manila has estimated it could lose more than 800,000 tonnes of paddy rice from a severe drought, raising the chances the world’s biggest rice buyer may import more.

For the government to meet a target of fiscal balance by 2013, the World Bank recommended a moratorium on tax-eroding measures, rationalisation of fiscal incentives and adjusting excise taxes for tobacco, alcohol and gasoline, among others.

“Tax administration reforms would boost short-term revenue gains while paving the way for long-term improvement in administrative efficiency,” the institution said.

The Philippines has forecast a 2010 budget gap of P293 billion ($6.4 billion), or 3.5% of GDP, slightly lower than the 2009 deficit of a record P298.5 billion, hoping revenue collection would improve as the economy recovers. –Reuters