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PHILIPPINES: Improving Investment Climate Will Help the Country Ride Out Global Turbulence—WB Report

MANILA, NOVEMBER 22, 2011—Improving the investment climate in the Philippines through measures such as upgrading infrastructure to attract private investments will help the country ride out the global turbulence brought about by the Eurozone crisis and the fiscal woes of the United States, says the East Asia and Pacific Economic Update (EAP Update) released today by the World Bank.

The Update, issued bi-annually, projects that amid a global growth slowdown, real GDP in developing East Asia will increase by 8.2 percent in 2011 (4.7 percent excluding China) and by 7.8 percent in 2012. Growth forecast for the Philippines is 4.2 percent in 2011 and 4.8 percent in 2012.

Titled “Navigating Turbulence, Sustaining Growth”, the Update was prepared by a group of experts led by World Bank Senior Economist Ms. Ekaterina Vostroknutova, with guidance from Mr. Bert Hofman, East Asia and Pacific Region Chief Economist and former WB country director for the Philippines.

According to the EAP Update, the growth prospects for the Philippines and the region are constrained by global uncertainties and by the impact of natural disasters. The slow progress towards the resolution of the debt problems in the Eurozone has intensified investors’ concerns over global growth and stability. As capital flowed out of emerging markets into relatively safer havens, portfolio investments were reversed and stock markets lost value in East Asia.

However, the Update maintains that the Philippines is well-positioned to cope with any new financial shock that might evolve from the current global turmoil. “The country is well-insulated from the global financial crisis owing to a significant improvement of macroeconomic fundamentals and regulatory reforms already in place following the Asian financial crisis of 1997-98,” says the Update.

The Update adds that the financial sector’s conservative stance throughout the preceding decade has helped ensure a healthy balance sheet for the country. Also, the corporate sector has not exhibited systemic vulnerabilities. The report noted that at the end of the second quarter of 2011, official reserves were the equivalent of ten months of imports.

Nevertheless, the EAP report says that the Philippines needs to improve productivity if the country hopes to sustain growth rate of above 5 percent. This will require a higher level of investments in key sectors such as productive infrastructure, education and social protection. It noted: “In the Philippines, the quality of urban and rural infrastructure is a major constraint, including roads, ports and airports.

It’s in this context where the country’s program to attract investments in infrastructure development becomes even more important,” said World Bank Acting Country Director Chiyo Kanda. “The government is accelerating the implementation of its public investment and PPP (Public-Private Partnership) programs. Mobilizing private sector resources—technical, managerial and financial— to boost delivery of essential economic and social services and infrastructure is a step in the right direction.

The Update says that the weakening of global demand is an opportunity for governments in the region to focus on reforms that will increase domestic demand and productivity. For the Philippines, it highlights the continuing need to improve competitiveness while cushioning the economy from adverse external shocks.

To strengthen the country’s resiliency to external shocks, the government needs to accelerate public spending,” says the EAP Update. “Raising more revenues through improved tax administration and policy reforms will enable the government to meet its priority spending targets, especially in infrastructure and human capital investment.

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