The World Bank slashed its growth forecast for the Philippines to 5.8 percent from the previous projection of 6.4 percent for 2019, as the Washington-based agency considers the impact of recent global developments as well as the sharp slowdown in investment growth in the first half of 2019.
The World Bank’s latest projection, which was released through the Philippine Economic Update report, falls below the Philippine government’s growth target of six to seven percent for this year.
The multilateral agency said in a statement yesterday the weakening global economy, rising protectionism, the United States-China trade spat, and the slowdown in public investments in the Philippines in the first half of the year have tempered the country’s growth prospects.
“While the government is trying to accelerate public investment to compensate for the underspending in the first half of the year, there are still implementation challenges that might prevent a full catch up,” Rong Qian, World Bank senior economist, said.
Qian added given the weak external environment, exports activities will remain subdued.
Qian however said the Philippine economy is expected to expand at a faster pace of 6.1 percent next year and 6.2 percent in 2021, which were also revised from the previous forecast of 6.5 percent for both years.
“Economic growth is expected to surpass six percent in 2020 to 2021 as the impact of the budget delay dissipates, assuming timely passage of new budgets, private consumption growth remains robust, and that uncertainties around the passage of tax reform program dissipate soon,” Qian said.
The World Bank elaborated that strong private consumption – due to lower inflation, higher employment rates, robust remittances and rising wages – and a recovery in public investment spending will keep the economy buoyant.
Also, the services sector will drive growth fueled by the continuing expansion of financial services and tourism.
“Given the global environment, resuming the fast pace of expansion in infrastructure and human capital spending will be key for the Philippines to regain higher growth momentum while continuing to lay the foundation for greater inclusio1n,” said Mara Warwick, World Bank country director for Brunei, Malaysia, Thailand and the Philippines.
“Timely passage of the 2020 budget and decisive action on the country’s tax reform program will remove uncertainties and help the private sector make timely decisions, boosting job creation,” she added.
The report projects that Philippines will sustain progress in reducing poverty despite the temporary slowdown in economic growth in the first half of 2019. More workers are finding gainful employment outside agriculture, real wages are rising, and inflation rates are stabilizing.
Also, the World Bank said the continuing implementation of social programs like the Pantawid Pamilya Pilipino Program contribute significantly to poverty reduction.
Using the World Bank’s $3.2 dollar-a-day poverty rate, the poverty incidence is estimated to have declined from 26 percent in 2015 to 20.8 percent in 2019, a result of growth of incomes among poor households. The poverty rate is expected to dip further to 19.7 percent in 2020 and 18.7 percent in 2021.
“In the medium term, accelerating implementation of high-impact infrastructure projects and the recently approved critical reforms like the Ease of Doing Business Law and liberalization of the rice trade will help the country sustain inclusive growth that generates high-paying jobs and reduces poverty,” Qian said.
Qian added the passage of investment-friendly reforms such as amendments to the Public Service Act to allow foreign ownership in key sectors including telecommunication and transportation services, and the Retail Trade Liberalization Act that will allow greater competition in the retail trade sector, can attract more foreign direct investment and boost local productivity.
The report also stresses that promoting competition to generate quality jobs will enhance the impact of growth on poverty reduction in the Philippines over the long term.
As many critical sectors of the country are dominated by a few players, the report recommends reforms to enhance competition in Philippine markets, including streamlining burdensome administrative procedures for businesses to make it easier to start a business, generating more competition in markets; eliminating restrictions on foreign as well as domestic investors to help level the playfield; and ensuring that state-owned enterprises compete on fair terms with private business, to promote more efficient use of public funds.