In a news briefing, ADB Philippine Country Director Kelly Bird said the sluggish performance of the country’s agriculture sector was a major factor behind the regional lender’s decision to revise downward its growth forecast for the Philippines this year and for 2019.
Bird noted the ongoing efforts of the government to convert the quantitative restriction on rice into tariffs and said it is “a step toward the right direction.” But, he said, this is not enough.
“The current system, particularly the quantitative restrictions and the National Food Authority, that’s not working for Filipinos,” Bird said. “This is a good opportunity to start looking at agriculture in the Philippines and ways to improve productivity.”
The ADB said supply problems in agriculture caused the rapid increase in inflation, along with high oil prices. It noted that oil prices are currently at $80 per barrel.
Given these threats, the ADB slashed its GDP growth forecast for the Philippines to 6.4 percent this year and 6.7 percent next year, from the initial forecast of 6.8 percent and 6.9 percent, respectively.
The ADB said, however, that the country’s growth outlook remains stable despite moderating slightly in the first half of the year, as the Philippines’s economic fundamentals are “strong.”
“We’re expecting growth to slowly pick up as public investment in infrastructure and social sectors accelerate and key economic sectors continue to perform solidly,” Bird said.
In its latest “ADO Update”, the ADB also maintained its forecast that the region’s GDP will rise by 6 percent in 2018. The growth forecast for 2019 was trimmed by 0.1 percentage points to 5.8 percent.
The ADB noted that growth is moderating in 6 of the 10 countries in Southeast Asia, which is now expected to grow by 5.1 percent this year, 0.1 percentage points lower than the previous forecast.
Net exports moderated growth in Indonesia, the Philippines, Thailand and Vietnam as imports surged to support government infrastructure investments. Growth should register 5.2 percent in 2019, consistent with the April 2018 forecast, though downside risks have intensified.
TRAIN’s impact
Following the ADB’s release of its latest report, Malacañang said on Wednesday that it expected the country’s economic expansion to fall short of its target for the year due to certain policy decisions, such as the closure of Boracay and implementation of the Tax Reform for Acceleration and Inclusion (TRAIN).
“Per the ADB’s updated outlook, the Philippines’s growth remains the second-highest in Southeast Asia,” Presidential Spokesman Harry L. Roque Jr. said in a statement. “Our economic managers are committed to the country’s long-term vision and are swiftly addressing issues affecting our growth prospects to sustain high growth and make it inclusive.” The TRAIN law was blamed for accelerating inflation this year, but the Department of Finance maintained that it its impact on consumer prices was only “minimal.”
So far, Bird noted that the national government has been proactive in addressing inflation, citing the recent decision by the Bangko Sentral ng Pilipinas to raise policy interest rates by 100 points.
“We have seen, for example, most recently the government had removed administrative restrictions on imports of right range of commodities,” Bird said. They are also looking at ways to improve farm-to-market infrastructure, public buildings and expand capacity of market places.
Despite the cut in the ADB’s growth forecast Budget Secretary Benjamin E. Diokno said he remains confident that the country’s economy will expand at 7 to 8 percent in the next five years.
“Our growth target is consistent with projections of multilateral institutions and global think tanks. With higher public investments, we are confident our growth target is achievable,” Diokno was quoted as saying before the various industry sectors of the business community during the Philippine Economic Briefing in London.
Diokno also said the country’s government spending will remain sustainable and supportive of economic growth and development.
Image credits: Nonie Reyes