MANILA, APRIL 7, 2010— For the Philippines and the other developing economies in the East Asia and Pacific region, rapid, inclusive growth that benefits the poor is possible over the next decade with deeper structural reforms.
That’s one of the core messages of the latest East Asia and Pacific Economic Update, the World Bank’s twice yearly assessment of the economies in the region.
The Philippines is forecast to grow 3.5 percent in 2010 and 3.8 percent in 2011 on the back of rising remittances and greater public spending. Higher growth rates will be possible if the country can tackle its long-standing bottlenecks including the weak investment climate and low spending on infrastructure.
Recovery in external demand, a sustained fiscal and monetary stimulus within developing East Asia, and a rapid rebound in consumer spending prompted the Bank to raise its projection for the East Asia and the Pacific region’s real GDP growth in 2010 to 8.7 percent, almost a percentage point above its November 2009 forecast.
The report says that the Philippines and the region are facing a challenging external environment, a “new normal” characterized by slower growth in developed countries, tighter financial conditions, rising concerns about developed countries’ debt levels and, as a consequence, a more difficult environment for growth.
“In that setting, the developing countries of East Asia will need to carefully manage the withdrawal of fiscal stimulus measures in the short term while returning to their structural reform agendas to promote growth in the long term,” said Vikram Nehru, World Bank chief economist for the East Asia Pacific region.
The focus on structural reform means different things to different countries, the report says. For China, it means rebalancing the economy, including enabling a larger role for the service sector and private consumption and moving away from investment-heavy, export-led growth as well as encouraging environmental sustainability.
For the Philippines and other middle income countries in the region – Vietnam, Indonesia, Malaysia, Thailand – the priority should be investment in physical and human capital to encourage the move up the value chain in production and exports.
"[Countries like the Philippines] must invest more and with greater efficiency in physical and human capital, foster substantially more innovative activity, and encourage entrepreneurship and risk taking,” said the EAP Economic Update. “Moving up the value chain will require better education and skills. The development of skills involves well-functioning and efficient education systems at all levels, combined with labor policies and active employer participation in setting education standards and curricula.”
World Bank Country Economist Karl Kendrick Chua said creating a strong revenue base is crucial to ensuring inclusive growth. “With the additional resources, the government can spend more on growth enhancing items such as education and infrastructure,” he said.
Mr. Chua added that more robust reforms to improve the country’s overall competitiveness and investment climate should enable the Philippines to post rapid growth and realize its rich potential.
“This can be done by addressing inadequate infrastructure and weak contestability of markets that have led to a high cost of doing business. Improving MSMEs access to finance would also be instrumental in generating more inclusive growth as MSMEs are key to job creation,” he said.