Reforms under P-Noy behind robust growth – Barclays

Kathleen A. Martin - The Philippine Star

MANILA, Philippines - Reforms implemented and currently being undertaken by the Aquino administration is one of the reasons behind the country’s robust economic growth, UK-based Barclays said.

“With President (Aquino) remaining in power until 2016, we expect positive momentum on fiscal consolidation and an improvement in the business environment to continue supporting overall investment in the economy,” Barclays said in its Emerging Markets Quarterly report.

“We expect Aquino to use his political capital to further advance Mindanao peace process, though this will not be easy. We also expect some progress on reform of the mining sector but major changes are likely to be challenging,” the bank added.

The push for the tax incentives rationalization bill has also been noted, as this will recoup revenues for the government.

At the same time, Barclays cited the government’s efforts in improving the business environment in the country such as raising its competitiveness ranking in the World Economic Forum’s survey.

“President Aquino remains committed to addressing corruption, and the latest focus is on greater transparency and accountability for the Priority Development Assistance Fund (pork barrel),” Barclays further said.

Aiming to secure peace in Mindanao also benefits the country although achieving this is seen to be challenging. Barclays has noted the ongoing conflict in Zamboanga which has already killed civilians, soldiers and policemen.

“The Philippines remains our preferred macro story in the region – a favorable growth/inflation trade-off, a political environment conducive to reform, solid central bank credibility, strong external finances and sovereign rating on a positive trajectory,” Barclays pointed out.

The bank recently raised its forecast for Philippine economic growth to 7.2 percent this year, higher than the government’s target of 6-7 percent expansion.

The Philippine economy has expanded 7.5 percent in the second quarter, the fastest in Southeast Asia and at par with China’s growth. However, this is slightly slower than the 7.7 percent growth in the first quarter.

“We continue to expect further sequential moderation, as the election-related boost and inventory build-up unwind. But we expect domestic demand to remain underpinned by strong remittance flows and government capex,” Barclays said.

“The private sector is also doing its bit, with San Miguel, Ayala and JG Summit planning investment in various infrastructure projects such as airports and railways. The external demand environment is also supportive.”

Barclays noted that despite the strong growth, inflation is expected to remain manageable as it forecasts an average inflation of 2.8 percent this year. This is below the central bank’s target of 3-5 percent.

“With a favorable growth-inflation trade-off, we expect the BSP (Bangko Sentral ng Pilipinas) to keep the policy rate unchanged at 3.5 percent until mid-2014,” Barclays said.

The BSP, mandated to ensure price stability is in line with supporting economic growth, has kept key policy rates unchanged since the start of the year.

The central bank cited the strong economic growth and benign inflation as reasons for keeping overnight borrowing and lending rates at 3.5 percent and 5.5 percent, respectively.

  • Latest
  • Trending
Are you sure you want to log out?

Philstar.com is one of the most vibrant, opinionated, discerning communities of readers on cyberspace. With your meaningful insights, help shape the stories that can shape the country. Sign up now!

or sign in with