The slower-than-expected implementation of the government’s infrastructure projects has forced the World Bank to cut its growth forecast for the Philippines this year and in 2018, although the country’s GDP expansion is still seen to outpace regional average.
In the East Asia Pacific Economic Update, the World Bank said it has tempered its growth forecast to 6.6 percent this year and 6.7 percent for 2018, from its April estimate of 6.9 percent for both years.
The Washington-based lender also said the economy is on track to post a growth of around 6.7 percent in 2019.
“Although the Philippines continues to grow most rapidly among these [Asean] countries, it is expected that growth in 2017 and 2018 will be slower than projected in April,” the World Bank said.
“The delay in the planned government- infrastructure program has contributed to slower growth in investment spending, thus softening the growth prospect for the year,” it added. The Philippine economy grew 6.4 percent in the January-to-June period.
Based on World Bank data, the Philippines’s economic growth will be higher than the expected average in Developing East Asia Pacific region of 6.4 percent in 2017; 6.2 percent in 2018; and 6.1 percent in 2019.
Compared to the average growth in Developing Asean countries, the Philippines will still grow faster since the group is projected to grow 5.1 percent this year and 5.2 percent in 2018 and 2019.
The bank said, among developing Asean economies, Cambodia is expected to post the fastest growth in 2017 and 2018, while Lao PDR and Myanmar are expected to share the top spot with a growth of 6.9 percent in 2019.
“We are still looking at base effects, especially in this second semester, because we had high growth in the second semester last year. But even then, they [World Bank] would be the first ones to say that we will still be among the top performers in the region,” National Economic and Development Authority Undersecretary Rosemarie Edillon told the BusinessMirror on Wednesday.
‘Series of fortunate events’
While the World Bank expects the Philippines’s economic growth to be slower this year and next year, the reduction in the country’s poverty rate is forecast to continue until 2019.
World Bank data showed the country’s poverty rate, using the international poverty rate of $1.9 a day and 2011 Purchasing Power Parity (PPP), will slow to 5.1 percent this year, 4.5 percent in 2018 and 4 percent in 2019, from 5.8 percent in 2016.
In terms of the lower middle-income poverty rate of $3.2 per day in 2011 PPP, poverty rate will slow to 24.2 percent in 2017; 22.9 percent in 2018; and 21.7 percent in 2019, from 25.6 percent in 2016.
The report also stated that using the upper middle-income poverty rate of $5.5 per day in 2011 PPP, the country’s poverty rate is expected to drop to 54.3 percent in 2017; 53.5 percent in 2018; and 52.6 percent in 2019, from 55.2 percent in 2016.
“It’s like a series of fortunate events, a confluence of good things. So first you
have strong economic growth and then second [the government has] a very aggressive redistribution program, which is the CCT [Conditional Cash-Transfer Program],” Edillon said.
Edillon noted that the CCT program was able to create cash economies in many areas that previously did not have “cash economies”. Through the CCTs, poor households are able to access various goods and services.
She said this worked for poverty reduction despite the fact that the CCTs were only distributed to about 12 percent of those living below the poverty line.
“That [CCT] really oiled the economic machineries there. This spurred economic activity in the area,” Edillon added.
Growth in the region
The October 2017 edition of the East Asia and Pacific Economic Update reports that the uptick in growth in 2017 relative to earlier expectations reflects stronger-than-expected growth in China at 6.7 percent, the same pace as in 2016.
For the rest of the region, which includes the large Southeast Asian economies, the Washington-based lender said growth in 2017 will be slightly faster at 5.1 percent in 2017 and 5.2 percent in 2018, up from 4.9 percent in 2016.
Several external and domestic risks could impact this positive outlook. Economic policies in some advanced economies remain uncertain, while geopolitical tensions centered on the region have increased.
Monetary policies in the US and the euro area could be tightened more quickly than expected. Many countries in the region have high levels of private-sector debt, while fiscal deficits remain high or are on the rise.
“The recovery of the global economy and the expansion of global trade are good news for the East Asia and Pacific region and its continued success in improving living standards,” said Victoria Kwakwa, World Bank vice president for the East Asia and Pacific Region.
“The challenge will be for countries to strike a balance between prioritizing short-term growth and reducing medium-term vulnerabilities, so that the region has a stronger foundation for sustained and inclusive growth,” she added.
To maintain resilience against risks, the report calls for a move away from measures aimed at short-term growth toward policies that address financial sector and fiscal vulnerabilities.
These measures include strengthening supervision and prudential regulation in countries experiencing rapid growth in private-sector credit and debt; reforming tax policies and administration to help boost revenue collection; and being ready to tighten monetary policy if warranted by the pace of interest-rate increases in advanced economies.
The World Bank said structural-reform priorities differ across countries. Sustained reforms of the state-owned enterprise sectors in China and Vietnam can improve growth prospects, while countries like the Philippines will benefit from continued improvements in public investment- management systems to support expanding public infrastructure programs.
The report also highlighted the potential that tourism development and deeper regional-integration offer to offset the risks of protectionism. Growth in tourism, if well managed, has the potential to yield substantial benefits to the region, including for the Pacific Island Countries.
The Asean Economic Community offers one avenue for promoting further regional integration, including by further liberalizing trade in services and reducing nontariff barriers.