Philippines: Reforms Urgently Needed to Achieve Higher Growth to Improve Lives of More Poor Filipinos – World Bank

March 19, 2012

Country needs to strengthen public finances and overall competitiveness to attain rapid and sustained growth of above five percent in the decades to come

MANILA, MARCH 19, 2012—Strong macroeconomic fundamentals—that is low and stable inflation, manageable government finances, a central bank awash with dollars from remittances and foreign investments as well as a well-targeted social protection system—have strengthened the Philippines’ resiliency against the global turmoil. The greater task at hand is accelerating reforms to put the country on a higher and sustained level of development that would significantly improve the lives of many poor Filipinos.

This is the main message of the Philippines Quarterly Update (PQU) titled From Stability to Prosperity for All released today by the World Bank.

“A huge window of opportunity currently exists for speeding up critical reforms,” said World Bank Country Director Motoo Konishi. “Besides having strong macroeconomic fundamentals, the country is benefitting from political stability and a popular government that is seen by many as strongly committed to improving governance and reducing poverty.”

For 2012 and 2013, the PQU’s growth forecasts for the Philippines are 4.2 percent and 5 percent, respectively.

The PQU says strengthening public finances and overall competitiveness are needed for the country to achieve rapid and sustained growth of above 5 percent for a long period of time. This was the level of growth achieved by neighboring countries that led to greater poverty reduction and improvement in the lives of the poor.

In order for the country to get closer to its potential as envisioned in the Philippine Development Plan 2011-2016, the PQU suggests more focus on several key reform areas such as strengthening public financial management, increasing tax revenues, and enhancing competitiveness through stronger regulatory capacity, enhancing competition including reducing the cost of doing business, addressing infrastructure and service delivery bottlenecks, and improving workers’ skills, thus making them more employable.

The government, Mr. Konishi said, has done a great deal in these policy areas. “Putting greater urgency into these efforts— as well as showing more support from other stakeholders including the policymakers, implementers, civil society and the private sector for these reforms—will go a long way in boosting growth that benefits the poor. It’s an opportune time for the country to move up to the next level,” he added.

“Accelerating structural reforms to enhance global competitiveness will improve the level and quality of employment in the country,” said Karl Kendrick Chua, World Bank Country Economist and main author of the report. “Moreover, successful implementation of these reforms would allow the country to take advantage of new opportunities arising from the global economic rebalancing and attract more investments as multinational companies relocate to other countries given rising production costs in China and other middle income countries.”

In 2011, the economy grew by 3.7 percent owing to lower government spending and weaker demand for the country’s exports by the troubled economies of the rich world, particularly Euro Zone countries, Japan, and the United States.

“In a scenario of a lingering global slowdown, domestic demand, in particular investments and government spending, will have to play a bigger role in achieving the country’s growth targets for 2012 and beyond,” said Mr. Chua.

According to World Bank Lead Economist Rogier J. E. van den Brink, employment prospects this year will see some improvements given higher public spending and continued growth in some industries.

“Higher infrastructure spending is expected to create tens of thousands of new jobs in the construction and trade sub-sectors while continuous growth of the BPO industry is expected to generate 100,000 new jobs this year. However, structural reforms are needed to create more and better jobs in the year ahead,” said Mr. van den Brink.

On the downside, the PQU says that the global slowdown may affect employment prospects in the exports sector, in particular electronics, which accounts for half a million jobs and several hundreds of thousands in indirect jobs in suppliers of exporters and allied services. Slower deployment of overseas Filipino workers could also dampen employment prospects in the coming quarters.

Also, the PQU says that while Philippine growth has been generally higher in the last decade, poverty, inequality, and labour market outcomes have not improved as much.

The PQU adds that more than a quarter of the population lives below the official poverty threshold and half of the population vulnerable to poverty. The middle class remains small at about 15 percent of the population of which about a third resides or works abroad. Inequality has worsened in the last decade and the quality of employment remains much weaker relative to the country’s potential and when compared to countries with similar level of development.

“We are assisting the government and other stakeholders to accelerate growth that creates jobs and improves the lives of all Filipinos. We have no doubt that inclusive growth will enable the country to join the ranks of developed economies in the next few decades,” said Mr. van den Brink.

Prepared by the World Bank’s Poverty and Economic Management (PREM) team, the PQU provides updates on key economic and social developments as well as policies in the Philippines. It also presents findings from recent World Bank studies on the country.


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