MANILA, Philippines - The impact of the disastrous earthquake and tsunami that recently hit Japan is not expected to affect the Philippine economy in the near term but its long-term effects is a cause for alarm, the World Bank said.
In its East Asia and Pacific Economic Update released yesterday, the World Bank said the areas to be strongly affected are trade, foreign direct investments, remittance and finance.
“China and the Philippines are more connected to developments in Japan than the rest of East Asia,” it said. “In the Philippines, electronics exports account for two-thirds of total exports.”
But for the meantime, the World Bank said it is sticking to its original forecast that the Philippine economy will grow by five percent this year and by 5.4 percent in 2012. The country’s gross domestic product (GDP) grew by 7.3 percent last year.
The consumer price index, which measures inflation, is expected to increase by 4.8 percent this year from 3.8 percent in 2010.
The World Bank said another concern that may alter their original forecasts for this year is the political turmoil in the Middle East and Northern Africa.
Global prices of oil are becoming extremely volatile and that has a major impact on the Philippine economy, being a net importer of crude and processed oil.
The World Bank report also expressed concern over the employment situation in the Philippines.
“The unemployment rate remains structurally high and growth continues to bypass many of the poor,” it said.
The unemployment rate stands at over seven percent while underemployment continues to affect one-fifth of the labor force.
Moreover, the latest official poverty data showed that an additional 3.3 million citizens became poor in the Philippines between 2003 and 2009, pushing the poverty headcount to 23 million from 30 million in 2003.
Meanwhile, inflation is expected to increase as global food and fuel supply shocks are returning, and that would push headline inflation outside of the target band, and possibly spill over into core inflation. “Monetary policy is projected to tighten gradually in the second half of 2011 as demand pressures are limited and inflation expectations remain with the Bangko Sentral ng Pilipinas (BSP) target band,” the report added.
The World Bank said while the Aquino administration is making headway in its revenue collection efforts, tax policy measures including reforms are needed.
“Key tax policy measures that would quickly raise revenues and improve social outcomes are increases in the excise tax rates of alcohol, tobacco and petroleum,” the report said. “Additional measures could include increasing the VAT (value-added-tax) rates and further broadening its base, possibly coupled with some reduction in the income tax rates.”