For Philippines, window to growth seen ‘narrowing’

The Philippine economy may grow at a faster clip of about 5 percent in 2012 from 3.7 percent in 2011. It all hangs on how decisively and quickly the government can spur investments with a little help from consumers and private investors.

The Inquirer sought the opinions of experts, government authorities, and lending institutions on the country’s economic prospects this year. As gathered, optimism rested on a strong banking sector and expanding agribusiness, business process outsourcing, creative industries, infrastructure, and tourism sectors.

But cautious voices also suggested that having a low base to grow from would not guarantee high growth.

The National Economic and Development Authority (Neda) expects “at least” 5 percent growth in the country’s gross domestic product (GDP) this year.

Social safety nets

Socioeconomic Planning Secretary Cayetano W. Paderanga has said that more aggressive and efficient public spending, good governance, social safety nets, and investments to make infrastructure resistant to climate change and disasters (to save on the cost of rehabilitation and reinvestments for certain projects), will build on each other to spur growth.

Also, an expansion of investments in energy and other priority industries—agribusiness, consumer durables, information technology (IT), health and wellness, transport, telecommunications, and especially tourism—will contribute positively to the country’s economic growth in 2012, Paderanga said.

But while Neda remains optimistic, it still has to “closely monitor” external developments that may affect the country’s economy through exports, remittances and other contributors.

‘Glowing’ projections

Budget Secretary Florencio B. Abad stuck to the government’s 5 to 6 percent growth target for 2012, citing investor confidence, a low base of comparison in 2011, and “glowing” long-term projections from financial institutions and credit agencies.

Abad also said that the country’s budget deficit would likely stay within the government’s forecast range, coming from a low deficit in 2011.

The head of the country’s state-owned think thank is fairly optimistic as well.

Philippine Institute for Development Studies (PIDS) president Josef Yap said in a paper that the domestic economy could grow by 5.6 percent.

Year 2012 may also be described as a transition year “toward an era of higher and sustained economic growth” if government implements appropriate policies. Political stability will also play a role in supporting growth, Yap said.

Economist Bernardo M. Villegas of the University of Asia and the Pacific (UA&P) expects GDP to grow at about 6 to 7 percent.

But Trade Secretary Gregory L. Domingo is much more optimistic, maintaining a forecast of “over 7 percent” growth.

The trade department aims to draw hundreds of billions in investments this year and promote creative industries to diversify the country’s exports portfolio, which is heavily dependent on semiconductors.

Another economist, Cid L. Terosa also of UA&P, is just a bit more conservative with a 5 to 5.5 percent prediction.

Caution

“Although economic data for the US looks encouraging, the economic situation in Europe is still blurry. Rising oil prices will fuel cautious behavior among businessmen and investors. The effects of PPP projects will be felt later than expected. Nonetheless, domestic consumption, remittances, public construction and even exports will help buoy the economy,” Terosa said in a text message.

A number of institutions and private economists expressed caution despite the rosy outlook expressed by authorities recently, particularly during the Philippine Economic Briefing on March 6.

Cheerleading

“There was an element of cheerleading in the recent Philippine economic briefing,” Benjamin E. Diokno of the UP School of Economics said in a text message.

The former budget secretary predicted GDP growth for the year to be around 4.2 percent, shrugging off the 7-percent target being touted by some officials.

“Where will economic growth come from? The first quarter is almost over, and I still have to see new and expanded activities that will bring new life to the P10-trillion economy. Pledges and plans don’t count, only real activities that move people, materials and technologies do,” Diokno explained.

The International Monetary Fund (IMF) also has a conservative growth forecast of 4.2 percent.

According to the IMF staff projection posted on its website this March, exports may continue to be sluggish overall. However, domestic demand may save the year as public and private demand strengthen, “reflecting a recovery in government spending, the start of long-awaited public-private partnerships (PPPs), supportive monetary conditions, and robust remittances.”

Bigger concerns

The World Bank, meanwhile, retained its 4.2 percent growth prediction for the Philippines, assuming it spends at least 85 percent of its total appropriations for the year.

But to sustain this level of growth or higher, World Bank country economist Karl Kendrick Chua said in a March 19 briefing that government must expand its revenue base, as well as plug loopholes in the tax system to further trim debt and increase the macroeconomic stability of the government.

The bigger concerns for investors, however, have to do with the ease of doing business and the “level playing field” in taxation: rationalizing incentives for businesses and changing the excise tax system on alcohol and tobacco such that they respond to inflation.

Chua said the excise taxes on alcohol and tobacco have not been indexed since 1996.

“Although they have increased somewhat, they have not caught up with inflation, so the result is that your real revenues will be falling, is expected to fall, is designed to fall, even if the government improves administration effort,” Chua said.

The Philippines has taken steps in the right direction, Chua said, with good governance measures, a conditional cash transfer program, and educational reform with the K-12 program, among others.

Still, it needs to institute more changes soon to take advantage of regional opportunities, he added.

“The window of opportunity is narrowing,” Chua pointed out. –Riza T. Olchondra, Philippine Daily Inquirer