Philippines: Time to Reinforce Actions against Global Slump - World Bank

July 19, 2012

Investing more in infrastructure, education and health will boost the economy’s resilience, ensure inclusive growth

MANILA, JULY 19, 2012— Making the country more conducive for investments big and small by ramping up spending in infrastructure, education and health will enable the country to maintain decent growth that benefits the poor, according to the Philippine Quarterly Update released today by the World Bank.

These reforms will even be more crucial should Europe’s debt crisis escalate, the report says.

“Given the worsening global scenario, investments by the private sector and government spending on key infrastructure as well as education and health will need to rise substantially to cushion the impact of the global crisis, sustain growth as well as create more and better jobs in the Philippines,” said World Bank Country Director Motoo Konishi.

“A highly-educated, healthier and skilled workforce will enhance productivity, enable firms to diversify, and shift to higher value-added activities, and drive growth,” said World Bank Economist Ms. Soonhwa Yi, the main author of the report.

The PQU forecasts the Philippine economy to grow at 4.6 percent in 2012, reflecting the economy’s strong performance in the first quarter.

Growth will be driven by higher government spending, given continuing improvements in the efficiency and pace of disbursements. Remittances are also expected to continue to grow, albeit at a slower rate. Services will remain stable, supported by additional employment from the business process outsourcing industry.

The PQU however says the Philippines’ economic momentum is facing strong headwinds from the global economy, which is projected to slow down to 2.5 percent this year, from 2.7 percent in 2011.

Growth rates of the Philippines’ major export markets are forecast to remain anaemic, with the Euro zone projected to suffer a -0.3 percent decline in real GDP this year. China is also expected to grow slower. This global slump may intensify, affecting some sectors in the Philippine manufacturing industry such as electronics, causing job losses.

According to the PQU, what favors the Philippines, given the global uncertainties, are its strong macroeconomic fundamentals: low inflation, a flexible exchange rate, a current account surplus, manageable government finances, high international reserves equivalent to almost a year’s worth of imports, and steady remittances.

The country, the report adds, has a positive current account balance and a flexible foreign exchange policy, a first line of defense against a global downturn.

However, higher public investment in infrastructure and social services require higher revenue collection. This can be achieved by broadening the tax base and improving efficiency and transparency in tax collections.

“Improved resource mobilization will not only help brace the economy against a prolonged global economic slump, but also enable the government to make the necessary investments in the physical and human capital needed to underpin a more inclusive growth pattern and make the country more competitive. In this regard, the investment climate for firms of all sizes needs to continue to improve, so that the private sector can generate more and better jobs for all,” said Rogier van den Brink, World Bank Lead Economist for the Philippines who oversaw the preparation of the PQU.

Improved revenue collection would, for instance, help ensure the availability of funds for important social safety nets such as the conditional cash transfer program called the Pantawid Pamilya program.

“Preliminary impact evaluation data show that the Pantawid Pamilya program eases poor families’ hardships in the short-term, and by requiring beneficiaries’ children to stay in school and have regular health checks, helps build the foundation for significant poverty reduction in the long term,” said Mr. Nazmul Chaudhury, Country Sector Coordinator for Social Protection, and one of the contributors to the report.

Currently, more than three (3) million poor families with 6.5 million children are enrolled in Pantawid Pamilya. In exchange for the monthly cash grants, beneficiaries are required to send their children to school and have regular health checks while pregnant mothers must comply with prenatal and postnatal care and their deliveries attended to by health professionals.

Prepared regularly by the World Bank in Manila, the PQU provides updates on key economic and social developments, as well as policies in the Philippines.


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