Fitch sees sustained Philippine growth

MANILA, Philippines - BMI Research, a unit of Fitch Ratings, expects an average growth rate of six percent over the next five years for the Philippine economy amid the fiscal stimulus measures being undertaken by the Duterte administration.

“We believe that President Duterte’s fiscal stimulus measures will be positive for economic growth as most of the increases in spending have been earmarked for infrastructure development and social services like healthcare, education and security, which will boost long-term productivity,” it said.

BMI Research said further improvement in public procurement to reduce wasteful spending would likely be positive for fiscal sustainability.

Recent data released by the Department of Finance (DOF) showed a four-fold increase in the country’s budget deficit to P216 billion in the first 10 months from P52.6 billion in the same period last year.

The research company said the country’s deficit to GDP ratio widened to two percent in 2016 from 0.9 percent in 2015.

“It is clear that fiscal stimulus measures under the Duterte administration will be more aggressive than its predecessor, and we expect spending on infrastructure and social services to pick up over the coming quarters, in line with the 2017 budget which targets a deficit of three percent of GDP,” BMI Research said.

BMI Research also said the Philippines has a severe infrastructure deficit which has dampened investor interest in non-construction sectors.

The World Economic Forum (WEF) has cited the infrastructure gap as the second largest hurdle for doing business in the Philippines.

According to the WEF global competitiveness index, the Philippines ranks a dismal 95 out of 138 countries in terms of infrastructure, with quality of roads, port, and air transport systems among the worst in the world.

Similarly, the research arm’s operational risk team also assigns a poor score of 40.4 out of 100 (emerging market average is 43.7) for the quality of the transport network in the Philippines.

The WEF also cited rampant corruption as well as the failure of the Philippine government to take advantage of the lower cost of borrowing since the Philippines achieved investment grade rating under the administration of former president Benigno Aquino III.