Philippines told to sustain infrastructure thrust

SUSTAINED infrastructure development can raise the Philippines’ annual economic growth rate “to well above 5% over the medium term”, senior officials of the International Monetary Fund (IMF) said in a webcast on Friday from Tokyo, Japan which is hosting the annual IMF-World Bank meeting for this year.

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“Now is the time to increase infrastructure, to improve infrastructure to lay the foundations for long-lasting domestic investment and growth,” said Masahiko Takeda, deputy director of IMF’s Asia and Pacific Department.

“The Philippines is among those countries in Asia that are growing close to their potential,” said Anoop Singh, director of the same unit.

Noting that current government efforts have been “focused on infrastructure to raise potential growth”, Mr. Singh said, “certainly, we see the potential for the Philippines to raise its growth rate to well above 5% over the medium term.”

Mr. Singh said the government was on the right track in “planning revenue increases … to make sure that spending on infrastructure is being done in a sustainable way.”

“It’s exactly the kind of fiscal reforms many countries in Asia need — to build infrastructure in a sustained way,” he stressed.

Latest data from the Budget department, however, showed state infrastructure spending totaled P122.6 billion as of August, less than half the P297.98-billion full-year program, though still 65.1% more than the level in the same eight months last year.

In the updated World Economic Outlook it released last Oct. 9, the IMF said it expected the Philippine economy to grow 4.8% this year and the next, against a global outlook of 3.3% and 3.6%, respectively, for the same periods.

Its projections compare to the 5% and 5.5% estimates for this year of the World Bank and the Asian Development Bank, respectively. These two institutions also projected the country to grow by 5% next year.

According to the Regional Economic Outlook Update the IMF released on Friday, the 10-economy Southeast Asian region is expected to expand 5.1% this year and 5.5% in 2013, while Asia – which groups Southeast Asia, “industrial Asia” (Australia, Japan and New Zealand), East Asia, South Asia and Pacific Island countries — will grow 5.4% and 5.9%, respectively.

The Philippine economy grew 6.1% in the first half, beating the muted 3.9% posted last year and putting the government’s 5-6% target for this year within reach. The government has projected the economy to grow 6-7% next year.

“Going forward, growth is projected to pick up very gradually and Asia should remain the global growth leader, expanding over two percentage points faster than the world average next year,” the REO Update said.

“However, considerable downside risks remain, in particular with regard to the euro area crisis,” it added.

Thus, IMF said, “refocusing structural and fiscal reform efforts towards sustained and more inclusive growth remain a priority.”

‘A BRIGHT SPOT’

Multilateral lenders’ cautious optimism towards members of the Association of Southeast Asian Nations (ASEAN), in the face of uncertainties particularly from the euro zone, was shared by Moody’s Analytics in a recent research note.

“The economies of Southeast Asia are powering ahead despite severe global headwinds,” wrote Moody’s Analytics economists Katrina Ell and Fred Gibson in ASEAN Outlook: A Bright Spot, dated Oct. 10.

“Singapore’s export-facing economy has been hit hard by the downturn in electronics demand and may be in recession, but the rest of the region is performing well. Indonesia, Thailand, Malaysia and the Philippines are expanding at or near potential, thanks to solid domestic demand,” they added.

“Even though global conditions are expected to remain soft for the next several quarters, most of ASEAN will continue to grow near trend,” they continued.

“That said, the gloomy global economic environment is a threat to the region’s upbeat outlook and if external conditions deteriorate further, exports, investments and sentiment will soften.”

For the Philippines, they particularly noted that growth has been supported by business process outsourcing, which relies on the country’s “stock of low-cost, well-educated workers” as well as by state pending which “has also stepped up ahead of next year’s…election.”

The analysts also noted that some Southeast Asian monetary authorities have been cutting key interest rates in the face of a weakened global economy, with Indonesia and the Philippines employing cuts totaling 100 and 75 basis points, respectively, since the year began. In the Philippines’ case, this has left key rates at 3.75% and 5.75% for overnight borrowing and lending, respectively.

They added that “our baseline scenario is for the global economy to stabilize and gradually improve from around mid-2013, so we have not penciled any further rate cuts.”

“But policymakers in ASEAN stand ready to loosen policy further should the global economy take a turn for the worse. Central banks are in a good position as price pressures are relatively subdued,” they noted.

DARK CLOUDS

In its own yearend report issued on Friday, the research unit of Metropolitan Bank and Trust Co. (Metrobank) kept the 5.5% full-year projection for Philippine economic growth that it made last June in the face of a weakened global environment.

“Risks to the domestic economy still remain given the continuing saga of the Euro zone crisis,” the report read, noting that “spillover effects” have hit both China and the US.

While it noted that “it seems like the dark clouds have more rains to pour over the global economy as 2012 comes to a close”, the report said “the relatively strong macroeconomic fundamentals of emerging markets…will help them survive the gloomy year fairly unscathed.”

It said the Philippine economy will continue to draw strength from its traditional supports of the services sector, buoyed particularly by the real estate and tourism sectors, as well as consumer spending in anticipation of the coming holidays.

Moreover, “public construction is expected to pick up in the latter part of the year on accelerated government spending ahead of the congressional elections next year,” the report read.

Metrobank’s research arm also expects inflation this year to average 3.4%, well within the target range of 3-5%, and for policy rates to remain untouched for the rest of the year.

With the country’s current strong macroeconomic fundamentals, the peso is expected to further strengthen against the dollar to P41.30 by yearend from its P43.84-per-dollar finish at end-2011. The local currency ended Friday’s trades 14.5 centavos stronger at P41.43 to the dollar. — KAM