WB raises GDP forecast for RP this year PDF Print E-mail
Thursday, 21 October 2010 13:56

The World Bank on Tuesday raised sharply its growth forecast for the Philippines this year as it urged the government to ramp up investment to support growth over the medium term.

In its East Asia and Pacific Economic Update, the Washington-based lender projected that the economy, as measured by gross domestic product (GDP), to grow 6.2 percent this year, higher than its earlier projection of 4.4 percent.

GDP is the total value of final goods and services produced in the country.

Philippine economic managers target a GDP of between 5 percent and 6 percent this year.

In the first half of the year, the economy expanded by 7.9 percent compared with the 0.9 percent in the same period last year.

This was the highest semestral growth since 1998 when GDP grew 9.3 percent.

For next year and 2012, the World Bank projected a GDP growth of 5 percent from and earlier forecast of 4 percent.

The World Bank said consumption and investment, along with higher remittance from overseas Filipino workers whose number continue to swell, are projected to further buoy domestic demand during the remainder of 2010.

“The Philippines can build on these economic gains to create a stronger platform for future growth, along with the government’s reform budget for 2011 that contains significant measures aimed at improving spending efficiency, transparency, and accountability,” Bert Hofman, World Bank country director for the Philippines said.

Eric Le Borgne, World Bank senior country economist, said the global recession has demonstrated improvements in the Philippines’ macro-financial resiliency, thanks to a remarkably robust external position.

“This is attributed to sound initial macro-fundamentals — especially the banking system, corporate sector, balance of payments, and fiscal and monetary policy space — coupled with growing remittance inflows,” Le Borgne said.

The World Bank added that the expansion of private domestic demand in the country became the main driver growth, offsetting a slowdown in government spending.

The lender said growth prospects in the near term for the Philippines are "favorable."

The World Bank, hoever, said sustained structural reforms will be needed to increase the medium term potential growth rate to more than 4 to 5 percent.

The lender added that the Philippines, along with other developing countries, should ramp up investment to sustain economic growth in the medium term.

"Investment rates in Thailand, Malaysia, and the Philippines, have yet to recover, and, in the case of the rates of Malaysia and the Philippines, they are among the lowest in middle-income countries worldwide," the World Bank said.

The bank added that more human and physical capital accumulation will help boost growth, support innovation and technical progress, and help firms move up the value chain.

"Much will depend on the success with which these economies attract private investment, build logistics and connectivity, increase the numbers of skilled and innovative workers, and transform their urban centers into incubators for new ideas," the lender said.

In the Philippines, a key shortcoming is the quality of urban infrastructure, roads, ports and airports. The high electricity costs and relatively high losses caused by blackouts are also a problem.

The World Bank said improving the efficiency of public spending is a welcome move, increasing the level of public spending is also needed to improve the stock of human and physical capital.

This would entail some tax policy reforms to ensure a higher and sustained revenue base that would enable the government to embark on more ambitious reforms, it added.

The bank, however, said without policy changes, notably the rationalization of tax incentives and increasing excise tax rates, raising the tax effort will remain challenging and could undermine the government’s expenditure program.

Given this, the bank said the deficit is likely to remain at 4.2 percent of GDP in 2010.

This year, the government expects a budget deficit of P325-billion or 3.9 percent of GDP.

In addition, the World Bank said the poverty headcount rate in 2010 for the Philippines is estimated to be higher by 0.4 percentage point due to the El Niño effect.

Poverty incidence among families also worsened from 24.4 percent in 2003 to 26.9 percent in 2006.

The El Nino phenomenon in the Philippines reduced agricultural production by 2.6 percent in the first half of 2010, complicating the country’s recovery from the global economic crisis.

The crop sector was the hardest hit, with corn production in the first half of the year down by 25 percent and rice production down by 10.2 percent.

"With the bulk of the poorest groups depending on food purchases, food price spikes can quickly translate into steep income losses and can have negative impacts on poverty and hunger, and can complicate achievement of other human development goals," the World Bank said.