Philippines: Improved Investment Climate Could Push Up Growth Significantly, Create More Jobs--World Bank

February 22, 2011

In Manila: Dave Llorito (632) 917-3047
Erika Lacson - Esguerra (632) 917-3013
In Washington: Carl Hanlon (202) 473-8087

MANILA, FEBRUARY 23, 2011 – Economic growth is forecast to moderate to around 5.0 percent in 2011 and 5.4 percent in 2012, but could be higher if investment climate continues to improve, according to the World Bank’s Philippines Quarterly Update (PQU) released today.

The Philippine economy grew by 7.3 percent in 2010—the highest in 34 years—due to the rebuilding of inventories by firms after the global financial crisis, the recovery of exports and manufacturing, accommodative monetary and fiscal policies and election spending. Record growth may moderate as some of these temporary factors disappear and the government’s policy stimuli are gradually withdrawn.

World Bank Country Director Bert Hofman said, “Strong private investment in the fourth quarter of 2010 and bullish business confidence are encouraging signs that the economy can attract investments needed to boost potential growth and generate more jobs.”

Equally important, according to the PQU, is the role that social protection will play in the next few years in addressing poverty. For all the macroeconomic resiliency and strength that the economy manifested in recent years, growth continues to bypass many of the poor.

The latest official poverty data confirm this trend. While real GDP growth averaged 5.4 percent during 2003-06 and 4.3 percent during 2006-09, or well above population growth, the poverty incidence rose from 24.9 percent of the population in 2003 to 26.4 percent in 2006, and inched up further to 26.5 percent in 2009.

The Philippine government piloted the conditional cash transfer in 2007 in selected areas of the country. The program provides modest food, as well as health and educational subsidies to the poorest of the poor in return for sending their children to school, visiting health centers, and having regular prenatal and postnatal care for mothers.

The Pantawid Pamilyang Pilipino (4Ps) or the government’s conditional cash transfer program operates in 80 provinces covering 734 municipalities and 62 key cities covering about 1 million households by end of 2010. For 2011, the 4Ps/CCT program is budgeted to cover 2.3 million poor households, or about 60 percent of poor households compared with 26 percent of poor households at end-2010.

“Outlook for both consumers and business is encouraging,” said World Bank Senior Economist Eric Le Borgne. “Net exports are also projected to remain strong thanks to exports diversification and robust outlook for the electronics industry.”

On the supply side, the services sector will remain the main driver of growth, followed by industrial production. Barring any major calamity, the agricultural sector should positively contribute to growth this year as the first three quarters of 2010 were negatively impacted by El Niño.

“Government efforts to improve the investment climate, tackle corruption and weak governance, along with more credit-rating upgrades could boost investor confidence and attract more private investment in the next few years,” Mr. Le Borgne added. “Sectors with high-growth potential include the business process outsourcing and tourism.”

The PQU identified downside risks that could weigh down future growth: rising international oil and global food prices. These shocks, the report said, could slow the economy down and raise inflation. Nevertheless, the PQU notes that in contrast to many countries in the region, food price inflation has been muted so far in the Philippines and is expected to remain moderate in 2011.

“In the short-term, concerns about a return of a 2008-style food crisis in the Philippines appears limited as rice price increases are projected to remain contained due to recent strong domestic palay production, good planting intentions, record stock piles of rice, and domestic retail prices significantly above international prices,“ said the PQU. “Food prices are nonetheless expected to rise moderately. Key risks to this outlook include severe weather events that would disrupt domestic food supply and a sharp increase in the international price of oil.”

Media Contacts
In Manila
Dave Llorito
Tel : (632) 917-3047
In Manila
Erika Lacson - Esguerra
Tel : (632) 917-3013
In Washington,DC
Carl Hanlon
Tel : (2020) 473-8087