‘Phl a rising star in a gloomy world’

MANILA, Philippines - The Philippines is a “rising star” in a gloomy world economy and could grow by as much as eight percent by 2016 if reforms in governance and business policies continue, a unit of debt watcher Moody’s Investors Service said.

Philippines economic growth could register between 6.5 percent and seven percent this year and the next, hitting government targets for both years, Moody’s Analytics senior economist Glenn Levine said in a report yesterday.

“The Philippines has been among the brightest parts of a generally gloomy global picture,” Levine said.

“Some low-hanging fruit has already been picked, but if development and reform continue near their current pace, the Philippines’ potential rate of growth will rise towards eight percent by 2016,” he explained.

Projections compare with the medium-term targets of the Aquino administration: six to seven percent this year, 6.5 percent to 7.5 percent in 2014, seven to eight percent in 2015 and 7.5 percent to 8.5 percent in 2016.

 â€œSustainable” growth will likely occur as a result of strong government spending that is pushing up construction activities, Levine said, noting that the sector grew 14 percent last year.

The business process outsourcing industry, meanwhile, is expected to offset weakening exports, which already dropped 9.4 percent as of February as electronics shipments “receded.”

Topping it all is a low inflation environment, which allowed the Bangko Sentral ng Pilipinas (BSP) to keep borrowing costs at their cheapest level to support lending activities and boost growth.

Inflation has “stabilized” at 3.2 percent as of the first quarter, falling at the low-end of the BSP’s three to five-percent target for the year. Consumer prices rose by an average of 3.2 percent in 2012. The overnight borrowing rate is at record-low of 3.5 percent.

But the Aquino administration’s “greatest achievement,” Levine said, was containing the budget deficit which allowed the country to bag its first-ever investment grade rating from Fitch Ratings last March.

The deficit fell to just 1.8 percent of economic output last year, and the government aims to hold it “near two percent” up to 2016. Government liabilities have also been manageable, with more local than overseas debts accumulated.

“The Philippines’ recent performance against a weak global backdrop shows that good governance is far and away the most important driver of growth in emerging markets,” Levine said.

“The crackdown on corruption and (the) encouragement of local and foreign investment, in particular, have worked well,” he added.

Policymakers should, however, treat rising domestic liabilities and asset bubbles as “mild concerns.” The bigger risk is the “complicated” taxation and business processes as well as limitation to foreign ownership. 

“If the government wants to attract more foreign investment, it must ease its restrictions on foreign ownership and streamline the rules for starting businesses, paying taxes and dealing with workers,” Levine said.