A NEW York-based think tank said the Philippine economy would likely slow down until next year on expectations the Aquino administration’s public-private partnership (PPP) scheme would fail to take off in the near term.
Global Source Partners said it cut its Philippine gross domestic product growth forecast from 4.8 percent to 4.3 percent this year, and from 5.5 percent to 4.8 percent for next year.
An indicator of economic performance, GDP is the amount of final goods and services produced in the country. Despite the government vow to redouble its spending and meet disbursement targets before the year ends, “it may find it increasingly hard to do so,” Global Source said. It said the Aquino administration’s infrastructure build-up program may “remain weak despite its conscious efforts to accelerate spending, and would therefore limit the country’s investment growth.”
“The big surprise during the second quarter had been the drop in public construction outlays, which fell by over 40 percent, a drastic reduction even coming from an election year. Fiscal accounts show that government [non-interest] spending during the first six months fell short of what was programmed by nearly P120 billion [about 17.5 percent] as wasteful projects were shelved and operating expenses cut,” the think tank said.
“This presumably barred any frontloading to take place and make the most of the summer months as had been trumpeted by economic managers after early passage of the budget,” Global Source said. It forecast “slow movement in the Philippines’ public-private partnership program, which should further stall the country’s much-needed infrastructure boost.”
No quick results for hybrid PPP
The think tank blamed the delays on the government’s lack of well-crafted feasibility studies, weak technical and institutional capacity, and overly tight scrutiny of unsolicited proposals, especially those put in the investment pipeline by the previous administration.
“With these delays and government’s housecleaning efforts, the investors’ interest has begun to dilute rather than promote it, in the short run at least, we are doubtful PPP projects would be able to take off anytime soon,” it said.
“Even the new scheme recently proposed for mass transport projects under the PPP may not yield the desired quick results. This approach, which hopes to tap cheap development loans to build the fixed component [e.g. tracks] while allowing private firms to bid for providing the rest of the system, including rolling stock and operations and maintenance, may be even harder and take longer to pull off as it introduces another layer of complexity in reconciling policies and procedural requirements of government, official funders, and private investors,” Global Source said.
Global outlook ‘infinitely gloomier’
The “global outlook has become infinitely gloomier over the past couple of months, with the eurozone in a sovereign debt crisis and the US in what could be another recessionary environment has put a heavy cloud over the Philippines whose fortunes are still in some ways tied to these countries, and opened up another period of uncertain growth,” Global Source said.
It said the Philippines’ economic growth would still be driven mainly by consumption, with net exports likely to decline this year and not see a major resurgence next year.
In the worst case scenario wherein European debt troubles coupled by US weakness lead to another global financial crisis of the same scale as 2008, the think-tank said the Philippines “could remain as resilient to recession and financial volatility as it had been back then,” even with the potential adverse impact on the country’s remittance and exports sector.
The country’s robust domestic demand, continued remittance and business process outsourcing inflows, historically high foreign exchange reserves, a generally healthy bank sector, and greater fiscal space will enable the country to counter a downturn in the real economy,” Global Source said. –KATRINA MENNEN A. VALDEZ REPORTER, Manila times
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