MANILA, June 8, 2022—Anchored on more robust domestic activities, the Philippines is poised to grow 5.7 percent in 2022 and 5.6 percent on average in 2023-24 amidst intensifying global uncertainties, according to the Philippines Economic Update (PEU) released today by the World Bank.
The Philippines grew 8.3 percent in the first quarter, fueled by strong domestic demand and the recovery of industry and services sectors. Continuing growth this year will draw strength from an improving domestic environment, characterized by low COVID-19 cases, greater mobility of people, and wider resumption of economic and social activities.
The reopening is shoring up services, especially transportation, restaurant and food services, and wholesale and retail trade. Prospects have improved for tourism following the opening of border to vaccinated individuals, reopening of tourist attractions, and relaxed travel requirements for travelers. Sustained public investments, along with recovering business activities, will boost construction and industry sectors.
“Continuity of reforms in the last six years promoting greater competition and attracting foreign investments will further boost the country’s growth outlook in the coming years,” said Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “In the context of narrowing fiscal space, the authorities can encourage public-private partnerships to sustain improvements in the country’s infrastructure assuming financial risks to the government are managed and the quality of services for the citizens are secured.”
Diop added that developing measures to reduce budget deficit and the country’s debt will ensure long term fiscal sustainability. These measures should focus on prudent spending, improved revenue collection through reforms in government procurement, and greater private sector financing to ensure that government allocations for education, health, other social services, and infrastructure are not sacrificed.
The PEU however flags several risks to the outlook, including rising inflation, geopolitical uncertainty brought about by the Russian invasion of Ukraine, tightening global financing conditions, and weaker growth of trading partners like the United States and China. While the country has entered a benign phase of the pandemic, the threat of a new variant-driven surge also hangs over the growth outlook.
The report says that prolonged war in Ukraine and the continuing sanctions on Russia, could further disrupt global economic activity, slow down growth of major economies in the world, and impair trade and financial flows.
Kevin Chua, World Bank Senior Economist, says taming inflation is a pressing concern as it can dampen consumption and worsen poverty.
Estimates of the direct effects of prices variations on poverty, show that a 10 percent increase in the global price of cereals is expected to raise the poverty headcount by 1 percentage point, pushing an additional 1.1 million Filipinos into poverty. An increase of 10 percent in energy prices, on the other hand, is estimated to raise the poverty headcount by 0.3 percentage points, equivalent to an added 329,000 Filipinos into poverty.
“Authorities have to use all available policy tools to address inflation, including monetary measures to prevent the de-anchoring of inflation expectations, and supply-side measures such as importation and lower tariffs and non-tariff barriers for important commodities to help augment domestic supplies as needed, and greater support to agriculture production through extension services, seeds, and fertilizer,” said Chua.
Social assistance will continue to play an important role in protecting poor and vulnerable households from high inflation and global uncertainties.
However, given the tight budget situation affecting the government, social assistance needs to be timely and targeted. Improving delivery of social assistance using digital technologies can ensure that assistance will reach those most in need, says the report.