World Bank cuts outlook on Philippines’ latest virus struggles

by Ian Nicolas Cigaral (Philstar.com), 26 Mar 2021

MANILA, Philippines — Failure to control a renewed spike in coronavirus infections has dampened World Bank’s growth prospects for the Philippines, with the economy seen regaining less ground this year due to delays in mass vaccinations and underspending.

From its old forecast of 5.9% growth made in December, the Washington-based lender now sees gross domestic product growing at a slower pace of 5.5% this year after a record-breaking 9.5% collapse in 2020. The adjusted forecast is also more pessimistic than the Duterte administration’s own target of 6.5%-7.5% for 2021.

However, the downwardly revised outlook was better than the projected 4.8% average growth of ASEAN-5 this year, which groups the country together with Indonesia, Malaysia, Thailand and Vietnam. The broader East Asia and Pacific, where the Philippines is also included, is seen growing a faster 7.4% in 2021.

“The Philippines experienced the sharpest contraction of output among the largest economies of the region,” the bank said in a report released Friday.

“The contraction reflected an uncontrolled COVID-19 outbreak combined with strict nationwide lockdowns and mobility restrictions, a succession of natural disasters, and delays in budget execution which weighed on public investment,” it added.

Sought for comment, Acting Socioeconomic Planning Secretary Karl Kendrick Chua, himself a former World Bank economist before entering public service, told reporters it was “too early in the year to make changes” to the forecast.

“We always look at the data to guide our projections. And there are 9 months of data ahead,” Chua said in a Viber message when asked if government would revisit its targets.

A spike in coronavirus cases in recent weeks have already triggered tightening of restrictions in Metro Manila and four surrounding urbanized areas, inevitably dampening optimism of a quick economic rebound in the first quarter. Mass inoculations, pledged to start early, have been relegated to late second quarter, delaying a revival of consumer confidence critical to get the economic engine going.

Against this backdrop, the government’s budget response has remained, as World Bank said, “conservative” for the sake of protecting investment grade ratings. The result is chronic “underspending” exacerbated by “weak implementation” of projects.

That said, slower growth this year means some advantage for a faster turnaround next year. The World Bank sees the economy growing 6.3% year-on-year next year, more bullish than the 6% outlook last December. The new projection, however, still falls way below the government’s ambitious 8-10% target.

From there, GDP growth is again expected to moderate to 6.2% annually in 2023 when a new government would have taken over.

“In the Philippines, growth is expected to recover in the medium term, contingent on an improved external environment, a successful vaccination program, and the loosening of movement restrictions,” World Bank said.

“The challenge for these countries is to procure and distribute sufficient vaccines and to address any vaccine hesitancy among people through effective information campaigns,” it explained.