THE PHILIPPINES must sustain its momentum and build on last year’s strong economic performance to boost its credit standing, Fitch Ratings yesterday said.
“Questions still remain over the durability of the Philippines’ high growth last year. Are these higher growth outcomes sustainable? Is there a structural break from the historical trend of 4.5-5% growth?” Fitch director Philip McNicholas said in a teleconference.
The Philippines exceeded expectations when its gross domestic product (GDP) grew by 7.1% in the third quarter of 2012, outpacing the rest of Southeast Asia. This took the nine-month average to 6.5%, well above the government’s full-year target of 5-6%.
The government has set its sights on better growth prospects over the medium term, gunning for GDP growth of 6-7% this year and 6.5-7.5% in 2014.
Mr. McNicholas, however, pointed out that the pace of economic growth was not matched by an increase in investments.
Investments amounted to 18.8% of the economy in the first three quarters of 2012 and are projected to increase to 23.3% for the full year. This would be a slight improvement from the 21.7% notched in 2011, 20.5% in 2010 and 17.9% in 2009.
“The investment ratio must be improved, with the view towards creating a longer-term uplift in the GDP trajectory,” Mr. McNicholas said.
“We want to look through the cycle and see if there is a structural difference, not just a short-term upswing of 12 to 18 months,” he added.
Economic managers, for their part, pledged to address the growth constraints.
Finance Secretary Cesar V. Purisima identified public spending and the public-private partnership program as solutions to the lack of fiscal space.
“This has many benefits, such as the improvement of our country’s competitiveness and productive capacity, utilization of foreign exchange reserves, continued stimulation of our economy…,” Mr. Purisima said.
The government also plans to boost investments by making the country a “haven for entrepreneurs” through easier business processes, among others.
Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo, meanwhile, said: “The necessary elements of sustainable growth are now being put in place.”
He pointed to crucial reforms implemented over the past years such as the deregulation of the oil and power industries and the expansion of the value-added tax.
“It would also be good for Fitch to appreciate the resiliency of the Philippine economic growth story in the three years of the global financial crisis and the Euro fiscal crisis in 2011 and 2012,” Mr. Guinigundo added.
The credit rater still lauded the country for its achievements in 2012, especially political and economic reforms.
“Policy efforts do appear to provide anecdotal benefits, such as better spending, stronger GDP and more stable inflation…,” Mr. McNicholas said.
“The recent passage of the ‘sin’ tax bill is also a potentially positive development, although execution risks remain.”
Moreover, public finances — historically cited as a credit weakness — are no longer an issue.
Mr. McNicholas noted that revenue collections had increased markedly and that any remaining limitations were structural. –Diane Claire J. Jiao, Senior Reporter, Businessworld
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