MANILA, Philippines - The World Bank has retained its three-year economic growth forecasts for the Philippines, but stressed these projections can be exceeded if the government can ramp up its infrastructure spending as planned and provide clarity on its economic policies.
Drawing from its earlier forecast in April, the multilateral lending institution said it still expects the Philippine economy to grow 6.4 percent this year and 6.2 percent in the next two years.
In its October update on the domestic economy titled “Outperforming the Region and Managing the Transition,” the World Bank said the country has weathered the challenging global economy and grown at a rapid pace over the past five years, “supported by strong macroeconomic fundamentals and a highly competitive workforce.”
Domestic consumption is seen to prop up the economy driven by increased purchases from an expanding middle class, remittances from overseas Filipino workers, and increased employment.
“The economic outlook is optimistic with risks tilted to the upside,” said the report, noting “substantial” improvements in macroeconomic stability by way of low and stable inflation rates, prudent fiscal management, and comfortable level of foreign reserves.
The proposed budget for 2017 would increase infrastructure spending to 5.4 percent of gross domestic product (GDP) in order to address infrastructure bottlenecks and “enhance connectivity between the country’s wealthier and poorer areas.”
“This can boost a large segment of the economy including industrial activities, real estate, construction and tourism,” said the report.
The world bank said while the new administration’s 10-point socioeconomic agenda has been generally well-received as it signals continuity of the existing macroeconomic framework, the government still needs to dispel lingering uncertainty on the part of investors by providing clarity on it development priorities.
“The preliminary agenda is intended to bolster the government’s current, fiscal, monetary and trade policy stances, while prioritizing tax administration reforms. Despite these reassurances, however, a degree of uncertainty remains regarding the ultimate direction of macroeconomic policy. The short-term challenges is how to successfully manage the economic transition and providing the right signals to investors and businesses,” said the report.
In a briefing yesterday, World Bank lead economist Birgit Hansl said the completion of the 2017-2022 medium term development plan for the country is expected to provide investors with direction.
“Many reforms are being unveiled, specifically on tax policy and administration, the tracking of government spending, security of land tenure, ease of doing business, and restrictions on foreign participation,” she said. “But as policy details are still being discussed, some businesses might remain cautious. The completion of the new Philippine Development Plan this year will provide more clarity on the government’s development priorities and further improve the country’s growth prospects.”
The government is also pursuing a comprehensive tax reform effort that promises to make the tax system more equitable and efficient.
Hansl said that while the country’s macroeconomic fundamentals remain strong, the government should also pay attention to microeconomic reforms such as improving the ease of doing business in the Philippines to sustain growth.
“So here it will be really important to see what will be the priority of the new administration. Will it be trade facilitation, will it be changing how businesses operate. These involves also labor market issues,” she said.
She declined to comment on prevailing labor issues but said the bank is encouraged by the ongoing dialogue on issues such as contractualization and minimum wage setting.
In a statement, World Bank country director Mara Warwick said macroeconomic stability puts the Philippines in a position to accelerate inclusive growth that benefits all Filipinos.
“Poverty will decline faster if the returns from economic expansion are invested in building human capital by strengthening health, education, and social protection,” she said.