Underspending under Noy stalls infra dev’t — WB

The World Bank (WB) cited the need for the Aquino adminis-tration to speed up public spending to strengthen the local economy’s ability to withstand external shocks mainly as a result of the debt crisis in Europe and the still weak US economy even as it said the country remained well-positioned to absorb any new financial turbulence that might evolve from the current turmoil.

Prospects are weaker for Philippine growth, the WB said in its biannual report East Asia and Pacific Economic Update (EAP Update) entitled “Navigating Turbulence, Sustaining Growth” released yesterday.

The WB earlier had lowered its growth forecast to 4.2 percent from five percent this year and to 4.8 percent from 5.4 percent for 2012.

“Over the medium-term, the challenge for policymakers is to ensure that the Philippines continue to improve competi-tiveness, while cushioning the economy from adverse external shocks,” the report said.

The report stated that to strengthen the country’s resiliency to external shocks, the government needs to accelerate public spending.

It said public construction continued to contract for the four

consecutive quarters, by 51. 2 percent in the second quarter, from last year, as the implementation of government projects stalled.

It was estimated that as much as P200 billion were withheld by the government in its budget for this year from underspending.

It said that while the fiscal deficit improved sharply to 0.6 percent of gross domestic product (GDP) through September, this was largely the result of underspending, with expenditures declining by 11.4 percent from a year ago.

“Although underspending had improved the fiscal balance and may lead to higher quality public spending in the future, large deficiencies in infrastructure are yet to be addressed,” it said.

Raising more revenues through improved tax administration and policy reforms will enable the government to meet its priority spending targets, especially in infrastructure and human capital investment, the report said.

The report also pointed out the need to improve productivity in the domestic economy to sustain above five percent growth rate.

“In the Philippines, the quality of urban and rural infrastructure is a major constraint, including roads, ports and airports,” it said.

World Bank acting country director Chiyo Kanda said the lack of infrastructure in the country should be addressed, noting that “it’s in this context where the country’s program to attract investments in infrastructure development becomes even more important.”

“The government is accelerating the implementation of its public investment and PPP (Public-Private Partnership) programs. Mobilizing private sector resources — technical, managerial and financial — to boost delivery of essential economic and social services and infrastructure is a step in the right direction,” he said.

The Philippines is benefitting from relative political stability and an improved fiscal position, but key downside risks to growth remain which are increased global uncertainties and a slowdown in investments, according to the WB.

It noted that while portfolio investment inflows, or those being infused mainly to the stock market, are expected to remain strong, the more sought after foreign direct investments (FDI) is projected to moderate as foreign investors have become more cautious. “As before, private consumption is expected to be buoyed by remittances,” it noted.

The current account surplus is projected to remain in healthy surplus, driven by sustained remittance inflows amid a larger trade deficit as imports pick up, it said.

The WB, nevertheless, said the Philippines’ improved macro-economic fundamentals will cushion any impact of any new financial shock to the domestic economy.

“The country is well-insulated from the global financial crisis owing to a significant improvement of macroeconomic fundamentals and regulatory reforms already in place following the Asian financial crisis of 1997-98,” the report noted.

For developing East Asia, the multilateral lender forecast a real GDP growth of 8.2 percent for this year, but excluding China, the growth is pegged at 4.7 percent, and 7.8 percent for 2012.

The domestic economy grew by four percent in the first half this year, far lower than the 8.7 percent in the same period last year on account of base effect and the lower government spending in the first six months of this year.

Relatively, the report said growth in the region is being hindered by the ongoing debt crisis in the Eurozone as well as result of natural disasters.

On the other hand, the EAP Update noted that because of the Philippines’ financial sector’s conservative stance after the lessons learned from the financial crisis in the region more than a decade ago, balance sheets remained healthy and did not show any systemic vulnerabilities.

The country’s dollar reserves at the end of the first half of this year was even equivalent to 10 months’ worth of imports, it said.

The WB report also noted that the slowing global demand should be maximized by governments in the region to focus on reforms that will boost domestic demand and productivity.

For the Philippines, it highlights the continuing need to improve competitiveness while cushioning the economy from adverse external shocks, it said.

“To strengthen the country’s resiliency to external shocks, the government needs to accelerate public spending,” the EAP Update said.

“Raising more revenues through improved tax administration and policy reforms will enable the government to meet its priority spending targets, especially in infrastructure and human capital investment,” it added. –Angie M. Rosales,Daily Tribune