Business Skinning Left, pagematch: , sectionmatch: 1

Business ( Leaderboard Top ), pagematch: , sectionmatch: 1

Philippines capable of double-digit growth – IMF

The IMF said a higher public investment spending can generate sustained output growth, and improving public investment efficiency could bring about substantial additional benefits. Philstar.com/File

With improved efficiency in public investment 

MANILA, Philippines – The International Monetary Fund (IMF) expects the Philippines to post double-digit economic growth amid a steady improvement in public investment efficiency over the next 15 years.

In a report, IMF economist Takuji Komatsuzaki said the improvement in public investment efficiency generates substantial additional benefits particularly through higher gross domestic product (GDP) growth.

“Assuming half of the inefficiency is eliminated in five years, the increase in real GDP after 15 years is nine percent to 11 percent,” Komatsuzaki said.

The IMF considered two scenarios in the working paper including a permanent increase in public investment by two percent of GDP financed by borrowing as well as the same increase in public investment financed by higher taxes.

“All scenarios exhibited sustained gains in output because improving public infrastructure leads to gains in productivity, which crowds in private investment,” Komatsuzaki said.

Business ( Article MRec ), pagematch: 1, sectionmatch: 1

According to the report, when public investment efficiency is improved to the 20 percent inefficiency, the same five percent of GDP public investment results in over four percent of GDP contribution to public infrastructure and a cumulative increase in GDP of nine percent to 11 percent after 15 years.

The government has committed to raise infrastructure spending to five percent this year from around three percent in 2014. The country’s GDP growth slowed down to 5.8 percent last year from 6.1 percent in 2014 due to weak global demand and dismal government spending.

The IMF noted a persistently low public investment in the Philippines averaging 2.5 percent of GDP between 2000 and 2014 – the lowest among member countries of the Association of Southeast Asian Nations.

With this, the Philippines has one of the lowest public capital stock of 35 percent of GDP in 2013 compared with the ASEAN average of 72 percent.

Likewise, the World Economic Forum’s global competitiveness report has ranked the Philippines among the lowest in ASEAN and substantially lower than the ASEAN average in overall infrastructure and all of its subcomponents.

On the other hand, the country has made steady progress in governance and fiscal transparency based on the yearly improvement of its relative ranking in the World Governance Indicators of the World Bank since 2010.

However, the multilateral lender noted a need to further strengthen institutions to improve public investment efficiency as initial results of the Public Investment Management Assessment (PIMA) framework showed stronger planning and implementing phases but weaker in allocating phase.

With a low capital stock and a fast growing young population, the IMF said addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances.

The IMF said a higher public investment spending can generate sustained output growth, and improving public investment efficiency could bring about substantial additional benefits.

“It also shows that deficit-financing and tax-financing can have different dynamics in some macroeconomic variables. Given the need to ensure debt sustainability amid the large spending needs in other priority spending areas for inclusive growth, continued efforts mobilize revenue will be critical, including by enacting measures to offset any revenue eroding policy changes and preferably through a comprehensive tax reform that focuses on broadening the tax base,” it said.

Business ( Article MRec ), pagematch: 1, sectionmatch: 1
  • Follow Us:
Business Skinning Right, pagematch: , sectionmatch: 1