World Bank trims Philippine growth forecast to 4.7%

MANILA, Philippines — The World Bank continued to be less bullish on economic recovery for the Philippines as it further downgraded the country’s growth forecast this year due to the resurgence of COVID-19 cases and reimposition of strict lockdowns.

The Washington-based lender said even as the Philippines is poised for a rebound this year, the recovery is seen at a much slower pace as downside risks persist more than a year into the pandemic.

The World Bank said gross domestic product (GDP) for 2021 is now seen at 4.7 percent, a huge drop from its 5.5 percent forecast in March.

This also falls way below the government’s revised target of six to seven percent growth for the year. The Philippines is coming from a 9.6 percent GDP contraction in 2020, its worst performance in decades.

In a briefing Tuesday, World Bank senior economist Kevin Chua said the 4.2 percent contraction in the first quarter and the reimposition of quarantine measures due to increasing COVID-19 cases impacted the downgrade in forecast.

“A resurgence of infection due to the entry of new virus variants is the most significant risk, which may yet overwhelm the healthcare system. Scaling up testing, tracing, isolation and treatment measures, along with the rollout of the vaccination program, are key to the public health response,” Chua said.

“Failure to effectively contain the virus or implement a mass vaccination may extend mobility restrictions, which could lead to a further drop in incomes losses, disrupt businesses and delay economic recovery,” he said.

The country’s daily number of new COVID-19 cases surged beginning in March, averaging nearly 10,000 from just 1,400 in previous months, which prompted another round of lockdowns in Metro Manila and nearby provinces in efforts to contain the spike.

While daily cases have gone down since and critical care occupancy rates have eased, movement restrictions continue to impact on mobility, thereby affecting domestic activities.

Chua said the country’s growth prospects greatly hinge on its ability to manage the crisis and the trajectory depends on the effective pandemic containment, delivery of mass vaccination and further loosening of mobility restrictions.

“The sudden surge in cases in March and April shows the difficult challenge at hand. While mass vaccination has begun, constraints in the global market and vaccine hesitancy is still a problem,” he said.

In the Philippines, only 1.4 percent or about 1.54 million Filipinos have been fully vaccinated while those who were given at least one dose reached 4.42 million or some 4.1 percent of the population.

Chua emphasized that mass vaccination has become a precondition to further open up the economy so as not to further lose out on employment and income opportunities for Filipinos.

Progress in vaccination efforts and slowdown in infection rate would also boost consumer and business confidence.

The Philippines is expecting some 10 million vaccine doses coming in this month and another 13.5 million in July which could potentially lead to a ramping up of domestic demand.

Apart from risks in the domestic front, Chua said there are also external risks including a slower-than-expected global recovery, disruptions in international logistics and global value chains, and trade protectionism.

Nonetheless, the Philippines is expected to ride on the economic rebound of key economies and trading partners like the US and China which could translate to higher export demand and better prospects for remittances.

Chua said recovery is also dependent on the government’s continued commitment to deliver infrastructure projects that will contribute to public investments as market uncertainty and weaker lending activities may temper private investments.

“The national election is also projected to boost economic activity toward 2022 as it has done previously,” he said.

From a 4.7 percent expansion this year, the economy is seen accelerating to 5.9 percent next year and six percent by 2023.

On the fiscal side, the World Bank said economic recovery would also aid in bringing down the country’s debt-to-GDP ratio considering that the Philippines is already in a good position prior to the pandemic.

Last year, the share of the country’s debt-to-GDP expanded to 54.5 percent from the record-low 39.6 percent in 2019 following a combination of spending for pandemic response and reduction in revenues due to lack of business activities.

“It is just proper to borrow money to address this problem and if we look at our debt composition a lot of it is medium to long term loans. But we also have to make sure that expenditures are efficient, we are spending wisely and it should be targeted,” Chua said.

“Money should go where it should be. We want to have expenditure that will have a more meaningful impact on the economy,” he said.

As the government’s fiscal space becomes narrower given the pandemic, Chua expects that fiscal consolidation is likely in the medium term and part of that is looking at tax measures to generate revenues.