ADB sticks to 4% growth for RP

The Asian Development Bank (ADB) said yesterday it is sticking to its forecast gross domestic product (GDP) growth of four percent this year and 4.5 percent GDP growth in 2004 for the Philippines as basic fundamentals have not changed and government’s fiscal deficit targets remained on track.

However, the multilateral financing agency expressed concern over the reduction of expenditures by the government in its bid to consolidate its fiscal deficit targets.

In a press briefing yesterday, the ADB said the National Government should not rein in expenditures for infrastructure, social development and investments.

The continuing decline in public construction expenditures may cause a contraction in total fixed investments, the ADB said.

"It is creating a drag on the Philippine economy," said Tom Crouch, ADB country director for the Philippines.

As of August this year, government expenditures have reached P69.294 billion, a slight increase of 10.94 percent from P62.462 billion in the same period last year.

However, infrastructure spending has shrunk by 12 percent to P8.121 billion compared with P9.23 billion a year earlier.

In contrast, revenues rose by 12.4 percent to P408.35 billion this year against P363.36 billion in 2002.

Likewise the political climate, especially the 2004 national elections, is also an area of concern which could subdue investments.

"There are two basic kinds of investors in the Philippines, one that has been around for a time and the new ones," Crouch told reporters. While the existing investors have learned to deal with the volatile political climate in the Philippines, the new and prospective investors are disturbed by the unstable political climate, including the national elections.

"Basically, they would want to know who are the leading players in the national elections and what are their policies. Others would want to see how the elections are conducted, while others would want to know who wins the elections," the ADB director said.

There are also systemic issues that the Arroyo administration should address if it hopes to achieve a GDP growth of four percent this year. The ADB had forecast that the country’s full year GDP would remain at four percent similar to its earlier projections in April.

Among the issues are higher revenue collection aided by pieces of legislation such as the Internal Revenue Management Agency (IRMA). Likewise, the special purpose vehicle (SPV) law still needs some refining as it has not generated interest as earlier expected.

However, unemployment is likely to remain at around 10 percent this year and next, based on weak economic output.

"The budget deficit will be contained at 4.5 percent of GDP for 2003, and fall slightly to four percent in 2004. The current account will likely remain in surplus with an export pickup and continued strong overseas workers’ remittances. Inflation should remain stable," the Manila-based multilateral agency said.