Philippines: Outlook For Economy Remains Favorable In 2011—World Bank

MANILA, July 6, 2011—Prospects for the Philippine economy remain favorable in 2011 as investments, private consumption and the services sector are expected to strengthen. The challenge now is sustaining the momentum of reform for achieving inclusive or broad-based growth that benefits the poor.

This is the main message of the Philippines Quarterly Update (PQU) released today by the World Bank office in Manila.

“Prospects on the supply side remain favorable with manufacturing and construction projected to benefit from the end of the trade disruption linked to Japan’s post-disaster reconstruction, as well as the solid growth forecast for the business process outsourcing,” said World Bank Senior Economist Eric Le Borgne during the release of the quarterly economic update.

“Increasing mineral prices will provide incentive to fast track investment and increase production in the mining sector. The strong performance of the services sector in the first quarter is expected to remain robust throughout the year. The agriculture sector is projected to continue being a net contributor to growth,” added Mr. Le Borgne.

The PQU maintains its forecast of 5.0 percent gross domestic product growth rate in 2011 and 5.4 percent in 2012. The report, however, says that growth could potentially be higher as the strong focus and early gains of the Aquino administration in tackling corruption and improving the investment climate could boost domestic investment.

The PQU says that net exports are projected to recover due to a combination of a technical rebound in exports that were affected by Japan’s earthquake-tsunami-nuclear event combined with a potential boost in exports of goods and services (including labor exports) to Japan as Philippine companies and workers contribute to the reconstruction of affected areas.

“Private consumption is projected to be buoyed by strong wage growth and employment among relatively well paid and formal sectors like the BPO,” says the PQU.

World Bank Country Director Bert Hofman said the Philippines’ recent performance indicates that the country’s economy has already stabilized since the global financial crisis, with more robust and less variable growth. Prior to the global recession that started in 2008, the country was perceived to have a weak fiscal position, making it vulnerable to shocks and volatility. The global recession showed the extent to which the country’s economic fundamentals have improved, Mr. Hofman said.

“The November 2010 upgrading of the country’s sovereign foreign currency rating by Standard and Poor’s and a similar upgrade by Moody’s this June are testaments to this significant improvement,” said Mr. Hofman. “The challenge is to ensure that growth is more inclusive or one that all citizens participate in and benefit from.”

Achieving this goal, the Report says, requires taking actions that enhance the income-earning opportunities of the poor as well as assist households to participate in markets by enhancing their human capital. The Report also adds that greater efforts are needed to improve access to education, health, and social protection services, particularly among the poorest populations and in the poorest regions.

The PQU says that one year into office, the Aquino government has taken important reforms towards achieving inclusive growth. Notable reform measures achieved include improving the transparency of the public sector budget and of public financial management to improve governance and launching an ambitious public-private partnership program to address infrastructure bottlenecks as well as help foster the development of inclusive sectors such as tourism.

The Report says that regional airport development combined with partial ‘open sky’ agreements would enable international tourists to reach tourism hot spots in the Philippines directly, thus generating jobs for the poor as well as business opportunities from micro and small enterprises. In terms of boosting and protecting human capital of the poor and vulnerable, the government has reshuffled social protection resources away from wasteful and ineffective programs, towards the well-targeted conditional cash transfer program. By end-2011 the 4Ps is budgeted to cover 60 percent of the poor.

“To ensure inclusive growth, a steady focus on reforms will be needed but so will additional resources,” says the PQU. “To improve revenue mobilization, the strategy of the government has been to first increase tax compliance through enhanced tax and customs administration. Ultimately, however, tax policy reforms outlined in the country’s Philippines Development Plan would also be needed to complement the compliance-enhancing administrative measures.”

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