RP to fall behind 8.2% Asia growth

As so-called low-base factors, as a result of the comparatively low growth rates last year, subside, economic growth is seen to slow down from the record 7.9 percent in the first half and settle at an overall 6.2 percent gross domestic product expansion by the end of the year, the revised Asian Development Outlook (ADO) for this year issued by the Asian Development Bank (ADB) showed.

The forecast growth for the country is below the Asian average of 8.2 percent growth in 2010, up from the bank’s 7.5 percent forecast earlier this year.

The ADB said it upgraded its forecast for the region as it “recovered from the global (financial) crisis with remarkable speed and vigor.”

In 2011, the country’s economic growth is forecast to ease to 4.6 percent as a consequence of base effects, reduced policy stimulus at home and abroad, and slower growth in world trade, the ADO stated.

The report stated two key challenges facing the Aquino administration which are raising revenue collections and improving the investment climate.

Improving revenue collection is needed to support social and development spending, which have lagged for many years, it said.

It noted the new administration has said it will avoid increasing taxes or introducing new taxes, “so that raising revenue depends heavily on strengthening tax administration.”

On the expenditure side, public service wages and benefits (29 percent of total expenditure in January to July) have risen, mainly due to newly legislated salary increases for the public service, while interest on the public debt accounts for one fifth of all expenditure, crowding out development spending, the ADO said.

It also noted the government’s outstanding debt remains high, equivalent to about 57 percent of gross domestic product (GDP).

It added that another challenge is to upgrade the investment climate to encourage the creation of new businesses and employment, which is currently inadequate to absorb the growing labor force.

“The relatively low level of private investment in recent years is attributed to infrastructure deficiencies as well as to weaknesses in governance and in the policy climate,” it said.

Risks to growth come from uncertainty over the strength and pace of the global economic recovery and a stronger than anticipated La Niña weather disturbance that could hurt agriculture, it added.

The ADB report said that despite balance-of-payments surpluses and substantial foreign reserves, financial markets could become unsettled if fiscal slippage continues, raising the country’s risk premium.

Asia’s developing economies should make long-term growth their top priority, the ADB report said as it lifted its 2010 growth forecast for the region.

Growth would slow to 7.3 percent in 2011, while inflation would remain within the central banks’ “comfort zones” of an average 4.1 percent this year and 3.9 percent in 2011, the report said.

“Developing Asia’s recovery seems to have taken a firm hold,” ADB chief economist Jong-Wha Lee told a press briefing in Hong Kong.

“But we should not be complacent. There are still a lot of challenges to long-term, sustained growth.”

The latest forecast remained below the region’s record 9.6 percent expansion in 2007. –Daily Tribune