MANILA, Philippines — The World Bank has downgraded its 2019 growth forecast for the Philippines to 5.8 percent, taking into account the weak and uncertain external environment and the slowdown in public investments in the first semester.
In its Philippines Economic Update, the multilateral bank has downgraded its 2019 growth forecast for the Philippines from the earlier forecast of 6.4 percent in April considering the weak global economy, rising protectionism, the escalating trade war between the US and China, and the weak public spending in the first half because of the delayed passage of the 2019 national budget.
World Bank senior economist for the Philippines Rong Qian said that while the government is trying to accelerate public investment to compensate for the underspending in the first half, there are still implementation challenges that might prevent a full catch-up.
“Although we are seeing signs that this budget is disbursed more quickly in the last months, the challenge is a lot of agencies have not started the procurement process. And as you know, the procurement process in the Philippines is rather long,” Rong said in a briefing.
“Another challenge is the absorptive capacity of the private sector. The budget delay caused some accumulation of projects and now that it has been passed, they all go to the market and at the same time the private sector, especially the construction sector in some LGUs don’t have the absorptive capacity,” she said.
Because of the weak external environment, growth in exports is expected to remain subdued.
Nonetheless, other drivers such as strong private consumption because of lower inflation, higher employment rates, strong remittance inflows, and rising wages will keep the economy buoyant, recovering to 6.1 percent in 2020 and 6.2 percent in 2021.
“Economic growth is expected to surpass six percent in 2020-2021 as the impact of the budget delay dissipates, assuming timely passage of new budgets, private consumption growth remains robust, and that uncertainties around the passage of tax reform program dissipate soon,” Rong said.
According to Rong, fiscal policy can be expected to remain supportive of growth alongside the recovery of public investment.
“Monetary policy is also expected to be acomodative as inflation pressure diminishes,” Rong said.
The report said that despite the slowdown in economic growth in the first half, the Philippines can sustain progress in poverty reduction as more workers are finding gainful employment outside agriculture, real wages are rising and inflation rates are stabilizing.
The continued implementation of social programs like conditional cash transfers also contribute significantly to poverty reduction.
Rong stressed that to regain growth momentum in the short term, there is a need to ramp up public investment and fast track the implementation of “game changing reform” to accelerate inclusive growth.
“To sustain the public investment momentum, timely passage of the 2020 budget would be important. Similarly, swift passage of the corporate tax and fiscal incentives reform will help to resolve uncertainties in the private sector,” she said.
Likewise, the passage of reforms that facilitate the entry of foreign players such as the amendment to the Public Sector Act and Retail Trade Liberatlization Act would boost private investment.
The report also stressed the need to improve competition in the country to enable the entry of more players and page the way for the creation of more quality jobs.