MANILA, Philippines - London-based think-tank Capital Economics Ltd said it is possible for the country to achieve a gross domestic product (GDP) growth rate of eight percent through improved infrastructure and business environment.
Gareth Leather, Asian economist from Capital Economics, said in a report that a growth rate of eight percent could be attainable but a six percent expansion is more likely.
He said the Philippines is unlikely to achieve the growth rates seen in neighboring economies at a similar stage of development while its business environment remains so weak.
“The government has ambitions to boost the annual rate of growth to eight percent, but this will only happen if it is able to push ahead with plans to improve infrastructure and the business environment,” Leather stressed.
He pointed out that the Philippines has slipped from being one of the richest countries in Asia in the 1960s to being one of the poorest today.
The think-tank said GDP growth in the Philippines averaged just 2.8 percent per year in the 1990s compared to 6.7 percent in Asia ex-Japan over the same period.
Although growth picked up in the 2000s to an annual average of 4.4 percent, Leather said this was still around half the rate that most other economies in the region achieved when they were at the same level of development.
“What’s more, rapid population growth in the Philippines means that its relative performance on a GDP per head basis has been even worse. In the 1960s the Philippines was one of the richest countries in Asia.”
He added that the GDP per capita of the country fell to 40 percent of the emerging Asia average in 1980 and just 15 percent in 2010.
“The Philippines’ low level of GDP per head means there is plenty of room for catch-up growth. In addition, the Philippines’ geographic position in the fastest growing region of the world economy and proximity to some of the busiest shipping routes in the world are big plus factors. As a result, growth could potentially accelerate significantly,” he said.
Capital Economics said the main cause of the weak performance of the Philippines has been low investment.
“We believe that the key reason for the Philippines’ under-performance has been weak investment. Investment boosts productive potential, which is why there is a strong relationship between investment-to-GDP ratios and growth rates in subsequent years for many Asian economies,” it added.
It explained that demographic factors should push the savings rate higher over the next decade, which should in turn support stronger investment and faster economic growth.
“There is no universal optimal rate of investment, but in a poor country with a low capital stock, there is plenty of potential to boost growth through investment in new machinery and infrastructure,” Leather said.
At the moment, the investment ratio in the Philippines of around 20 percent is similar to that in Japan and some euro-zone countries, and well below the levels seen in other fast-growing Asian economies.
Capital Economics said the poor business environment in the Philippines has also undermined the country’s export sector. Exports were the equivalent to just 32 percent of GDP in the Philippines.