World Bank hikes RP growth forecast on remittances, investment

THE World Bank on Tuesday raised sharply its growth forecast for the Philippines this year as it urged the government to ramp up investments to support growth over the medium term. In its East Asia and Pacific Economic Update, the Washington-based lender projected that the Philippine economy, as measured by its gross domestic product (GDP), would grow 6.2 percent this year, higher than the lender’s earlier projection of 4.4 percent.

GDP is the total value of final goods and services produced in the country.

Philippine economic managers target growth of between 5 percent and 6 percent this year.
In the first half of the year, the economy expanded by 7.9 percent compared with the 0.9 percent in the same period last year.

This was the highest semestral growth since 1998 when GDP grew 9.3 percent.

For next year and 2012, the World Bank projected Philippine GDP to grow 5 percent from an earlier forecast of 4 percent.

The lender said consumption and investment, along with higher remittance from overseas Filipino workers (OFWs) whose numbers continue to swell, are projected to further buoy domestic demand during the remainder of this year.

“The Philippines can build on these economic gains to create a stronger platform for future growth, along with the government’s reform budget for 2011 that contains significant measures aimed at improving spending efficiency, transparency, and accountability,” Bert Hofman, World Bank country director for the Philippines, said.

Eric Le Borgne, World Bank senior country economist said the global recession has demonstrated improvements in the Philippines’ macro-financial resiliency thanks to a remarkably robust external position.

“This is attributed to sound initial macro-fundamentals—especially the banking system, corporate sector, balance of payments, and fiscal and monetary policy space—coupled with growing remittance inflows,” Le Borgne said.

The World Bank said the expansion of private domestic demand in the country became the main driver of growth, offsetting a slowdown in government spending.

The lender said growth prospects in the near term for the Philippines are “favorable.”

Sustained structural reforms will be needed, however, to increase the medium term potential growth rate to more than 4 to 5 percent, the lender said.

“Investment rates in Thailand, Malaysia, and the Philippines have yet to recover, and in the case of the rates of Malaysia and the Philippines they are among the lowest in middle-income countries worldwide,” the World Bank said.

The bank said more human and physical capital accumulation will boost growth, support innovation and technical progress, and help firms move up the value chain.

“Much will depend on the success with which these economies attract private investment, build logistics and connectivity, increase the numbers of skilled and innovative workers, and transform their urban centers into incubators for new ideas,” the lender said.

In the Philippines, a key shortcoming is the quality of urban infrastructure, roads, ports and airports. The high electricity costs and relatively high losses caused by blackouts are also a problem, the World Bank said.

While improving the efficiency of public spending is a welcome move, increasing the level of public spending is also needed to improve the stock of human and physical capital, the lender said.

This would entail some tax policy reforms to ensure a higher and sustained revenue base that would enable the government to embark on more ambitious reforms, it added.

Given this, the bank said the Philippines’ budget deficit is likely to remain at 4.2 percent of GDP this year.

This year, the government expects a budget deficit of P325-billion or 3.9 percent of GDP.

The Philippines’ poverty headcount is estimated to be higher by 0.4 percentage point due to the El Niño, the World Bank said.

Poverty incidence among families also worsened from 24.4 percent in 2003 to 26.9 percent in 2006.

The El Niño phenomenon in the Philippines reduced agricultural production by 2.6 percent in the first half this year, complicating the country’s recovery from the global economic crisis.

The crop sector was the hardest hit, with corn production in the first half of the year down by 25 percent and rice production down by 10.2 percent.

“With the bulk of the poorest groups depending on food purchases, food price spikes can quickly translate into steep income losses and can have negative impacts on poverty and hunger, and can complicate achievement of other human development goals,” World Bank said. –DARWIN G. AMOJELAR SENIOR REPORTER, Manila Times