MANILA, October 3, 2016 – The Philippines remains one of fastest growing economies in East Asia and the Pacific despite the weak global economy. The country’s gross domestic product is forecast to grow 6.4 percent this year and 6.2 percent in the next two years.
The Philippine economy may surpass the forecasts if authorities can further ramp up spending on public infrastructure as planned, says the Philippine Economic Update titled Outperforming the Region and Managing the Transition released today by the World Bank.
In 2017, 40 percent of the planned government spending on infrastructure will be for roads, railways, seaports and airports. This can boost a large segment of the economy including industrial activities, real estate, construction, and tourism, according to the report.
World Bank Lead Economist Birgit Hansl said that domestic consumption will also continue to prop up the economy, driven by three factors: rising purchases from an expanding middle-class, remittances from overseas Filipino workers, and the expansion of jobs as a result of the growing economy.
Upon assuming office, the new government reassured investors and the private sector with continuity of existing macroeconomic policies including fiscal, monetary and trade policies that would support continued economic expansion and poverty reduction.
“Many reforms are being unveiled, specifically on tax policy and administration, the tracking of government spending, security of land tenure, ease of doing business, and restrictions on foreign participation,” said Hansl. “But as policy details are still being discussed, some businesses might remain cautious. The completion of the new Philippine Development Plan this year will provide more clarity on the government’s development priorities and further improve the country’s growth prospects.”
World Bank Country Director Mara Warwick said macroeconomic stability puts the Philippines in a good position to accelerate inclusive growth that benefits all Filipinos.
“Poverty will decline faster if the returns from economic expansion are invested in building human capital by strengthening health, education, and social protection,” said Warwick. “Currently, the poor are concentrated in the agriculture sector, where increases in productivity would generate higher incomes for rural dwellers. Achieving this will require a comprehensive rural development strategy, which is among the priorities of the current administration.”
The report notes that as economic growth is sustained, and as spending on health, education, and social protection expands, extreme poverty is projected to decline from 10.6 percent in 2012 to 7.8 percent in 2016, 7.2 percent in 2017, and 6.7 percent in 2018.
Some highlights of the report are:
· The services sector – which includes the country’s business process outsourcing industry – will remain a key growth driver, projected to grow at 7.0 percent in 2016, and 6.8 percent in 2017-2018;
· With plants and factories operating at almost full capacity (83-84 percent), expansion in the manufacturing sector would require fresh investments in new equipment, machinery, and factories; and
· In the agriculture sector, increasing farm productivity would be important for improving its growth prospects that would lead to more inclusive growth.
This edition of the Philippine Economic Update contains a special focus note on tax policy options.
Given the environment of macroeconomic stability and high growth, the administration is pursuing comprehensive tax policy reforms as one of its priorities, to make the country’s tax system more equitable, efficient, and competitive in the region.