RP urged to maintain stimulus program

MANILA, Philippines – The government should maintain the fiscal and monetary stimulus program implemented since last year until private sector investments are strong enough to support economic growth, the World Bank (WB) said yesterday.

In a teleconference yesterday, Vikram Nehru, WB chief economist for the East Asia Pacific region, said the real test of recovery for countries in the region including the Philippines is when private sector growth returns.

“Government stimulus should be kept in place until private sector growth continues,” Nehru said as part of the East Asia and Pacific Economic Update, the World Bank’s twice yearly assessment of the economies in the region.

He said that for the Philippines and other developing countries in the region, rapid, inclusive growth is possible over the next decade only with deeper structural reforms.

The World Bank expects the Philippines to post a growth of 3.5 percent in 2010, within the official forecast range of 2.6 percent to 3.6 percent for this year, on the back of rising remittances and greater public spending.

Nehru said dollar remittances from overseas Filipinos are largely responsible for keeping the Philippine economy resilient and for allowing it to post a positive growth of 0.9 percent last year, albeit significantly slower than the 3.8-percent growth posted in 2008.

“Remittances are remarkably resilient,” he noted.

He said that for this to continue driving economic growth in the Philippines and other developing countries, government should cut the cost of remittances.

“It is important that the cost of remittances be reduced. It should be made as easy and as low-cost as possible,” Nehru said.

Remittances grew by $1.4 billion in January or 8.5 percent from year-ago levels, according to latest data from the Bangko Sentral ng Pilipinas.

In its East Asia and Pacific Economic Update, the World Bank also said the Philippines and the rest of the region are facing a challenging external environment such as the still slow recovery in Europe, tighter financial conditions, rising concerns about developed countries’ debt levels and as a consequence, a more difficult environment for growth.

It said that for the Philippines and other middle income countries in the region – Vietnam, Indonesia, Malaysia, Thailand – the priority should be investment in physical and human capital to encourage the move up the value chain in production and exports.

“Countries like the Philippines must invest more and with greater efficiency in physical and human capital, foster substantially more innovative activity and encourage entrepreneurship and risk taking. Moving up the value chain will require better education and skills. The development of skills involves well-functioning and efficient education systems at all levels, combined with labor policies and active employer participation in setting education standards and curricula,” said the EAP Economic Update.

In a separate briefing, World Bank Country Economist for the Philippines Karl Kendrick Chua said it is important for the government to create a strong revenue base to ensure inclusive growth.

“With the additional resources, the government can spend more on growth enhancing systems such as education and infrastructure,” Chua said.

Chua said the Department of Finance is on the right direction in pushing for crucial revenue measures such as the rationalization of fiscal incentives given to investors and raising taxes on alcohol and cigarettes. –Iris C. Gonzales (The Philippine Star)