Citi sets 2013 GDP forecast of 5.3%

THE PHILIPPINE economy could grow by 5.3% next year, Citigroup, Inc. yesterday said, as public spending and low interest rates support consumption and investment.

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“Sustained fiscal stimulus with a strong infrastructure bias coupled with a low interest rate setting underpin our full-year 2013 GDP (gross domestic product) forecast of 5.3%,” Citi said in its Asia Macro and Strategy Outlook.

The projection falls well below the government’s 6-7% target for next year. It is an improvement, though, from the 5% forecast Citi holds for 2012, right at the low end of the official 5-6% goal.

On the fiscal side, public spending is expected to surge next year with the expected timely passage of the P2.006-trillion national budget for 2013. Capital outlays, in particular, are programmed to increase by 15% from the year before.

Half of the infrastructure budget will go to roads and bridges, a tenth to floodworks and seawalls, while irrigation, floodworks and seawalls, basic educational facilities and housing share the other half.

“All these are anticipated to benefit construction activity and employment in the sector,” Citi said.

The risk of underspending remains, though, especially with delays in the public-private partnership (PPP) program meant to develop big-ticket infrastructure deals.

“PPP program slippage led to budget underutilization. Funds earmarked for government’s participation in some of the PPP projects scheduled to be rolled out this year but has been delayed, contributed to bulk of the fiscal underspending,” Citi noted.

“Government may have to prioritize execution of the fiscal budget to get the spending lift while fast-tracking the PPP projects,” it added.

Revenues, on the other hand, are doing well, especially with the impending passage of the “sin” tax bill, which will raise excise taxes on tobacco and alcohol products.

Should the government succeed in legalizing a “sin” tax bill with a revenue impact of P30-40 billion, it would cut the fiscal deficit for next year to only 2.2% of GDP, Citi said.

Meanwhile, in terms of monetary policy, Citi anticipates the peso to remain strong next year on the back of sustained remittances and capital inflows. It added that the central bank would not abandon inflation targeting in favor of exchange rate targeting, instead relying on macroprudential tools to hold the line at P41-to-a-dollar, it added.

The peso closed at P40.87:$1 yesterday, a new record high for the year.

With ample liquidity in the market, policy rates could be kept at their current lows of 3.5% and 5.5% for overnight borrowing and lending, respectively up to the start of 2014. — Diane Claire J. Jiao, Businessworld