Latest growth targets ‘on the optimistic side’

ANALYSTS have cast doubt on growth targets the Aquino administration has set for the remainder of its term, describing these as too bullish given uncertainties.

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“Things are certainly moving in the right direction for the Philippines… However, the numbers unveiled by the government do seem a tad on the optimistic side,” DBS Bank, Ltd. economist Eugene Leow yesterday said in an e-mail.

The government earlier this week announced gross domestic product (GDP) growth projections of 5-6% for this year, 6-7% for 2013, 6.5-7.5% for 2014, 7-8% for 2015 and 7.5-8.5% for 2016.

Based on this program the Philippines could achieve its highest growth rate yet, exceeding the record 7.6% set in 2010 as the country rebounded from a global economic crisis.

Mr. Leow, however, reckoned that the more realistic target could be “6% or even slightly higher” for the next five years.

The DBS estimates are aligned with those of Moody’s Analytics, the research arm of credit rating agency Moody’s Investors Service.

GDP growth is expected to hit 4.7% this year and 5.1% in 2013 and 2014, Moody’s Analytics associate economist Katrina Ell said in a separate e-mail.

“We are sticking with our lower growth rates because the government tends to set overly optimistic targets,” she said.

University of the Philippines economist Benjamin E. Diokno called on the government to first address constraints in the economy before gunning for “aspirational” growth targets.

The 2015 and 2016 targets, in particular, are a “pipe dream,” he said.

Economic growth was a dismal 3.9% in 2011 as agriculture, services and government consumption all performed weakly. The rate has since improved significantly, though, to 6.4% in the first quarter of this year.

Budget Secretary Florencio B. Abad has defended the Philippines’ growth goals, saying: “The country still has so much room to improve… We are building up the momentum.”

Analysts identified several factors that could help make the targets attainable.

“Growth will be helped this year by stronger government spending. Beyond the temporary lift, the Philippines is benefiting from strong but steady expansion in its BPO (business process outsourcing) sector,” Ms. Ell said.

The country must now ensure it remains an attractive destination for foreign firms to outsource to, she urged. The government should create a favorable environment for investments, especially BPO.

“In order to continue to achieve high growth rates and outpace much of Asia, remaining competitive is key,” Ms. Ell said.

For his part, Mr. Leow tagged macroeconomic fundamentals as the Philippines’ strength under the administration.

“On the fiscal front, external front and domestic economic growth, the country has done tremendously…,” he said.

“Continued progress on these areas, clamping down on corruption and streamlining investment rules will put the Philippines on a solid path of progress towards a higher growth plane.”

External conditions should also be considered, Mr. Diokno said. Volatility in the United States, Europe, Japan and Thailand dragged down trade and, subsequently, growth in 2011.

“What were the assumed global economic growth rates in the planned period? How much FDI (foreign direct investments) will enter the country?… The global economy is facing a recession and a slow normal growth even after it has recovered,” he pointed out.

University of Asia and the Pacific (UA&P) economist Peter Lee U agreed.

“The 5-6% this year should be doable. The targets in succeeding years depend a lot on the world economy,” he said in a text message.

With uncertainty over the global economic outlook, the Philippines should focus on building its domestic economy, Mr. U said. Increased investments in infrastructure are necessary, particularly for power in Mindanao.

The much-delayed public-private partnership (PPP) program should also be enforced “full blast,” fellow UA&P economist Victor A. Abola said in a separate text message.

The PPP program — the cornerstone of the Aquino administration’s economic agenda — has been hit by delays, with only one project having been awarded so far. Eight deals are in the pipeline for this year.

Investments in the agriculture sector are critical as well, particularly in irrigation, post-harvest facilities and farm-to-market roads, Mr. Abola said. –DIANE CLAIRE J. JIAO, Senior Reporter, Businessworld