WB: More reforms needed for growth

MANILA, Philippines - More structural and financial reforms are needed for the Philippines to remain in the growth path, even as the economy is expected to slow down this year to 6.6 percent from last year’s 7.2 percent, the World Bank said yesterday.

From this year’s 6.6 percent, growth is expected to pick up speed next year to 6.9 percent but again dip slightly to 6.5 percent in 2016.

The Asian Development Bank projects the country’s growth at 6.4 percent this year, and 6.7 percent in 2015.

The government sees economic growth at 6.5 percent to 7.5 percent this year, and 7.5 percent and 8.5-percent in 2015.

World Bank chief economist for East Asia and Pacific Bert Hofman said that structural and financial reforms remain the order of the day for the country’s economic managers.

However, Hofman does not recommend new taxes, especially with the impending increase in global interest rates.

“We could see the rise of interest rates in the course of the (US) Fed tapering, increased volatility. Likewise, most of the monetary policies are now unwinding,” he said in a teleconference press briefing yesterday.

As emerging economies continue to grow and unwind from stimulus programs, global interest rates are likely to rise to five percent in the long run.

He said structural reforms should be immediately implemented in anticipation of such movement in interest rates.

While tax revenues are important, he said the government should stick to existing tax reforms instead of imposing new taxes.

The Philippine economy posted 7.2 percent growth last year from 6.8 percent the year before, despite a devastating earthquake and a deadly typhoon that displaced 4.1 million people and caused P424 million ($9.6 billion or 3.7 percent of gross domestic product) in damage to agriculture, housing and infrastructure.

The Philippines managed to reverse an anemic investment growth in 2011 and 2012 with an 18 percent investment growth in 2013.

However, investment levels continue to be low vis-a-vis output, averaging just 19 percent of GDP from 2009–2013, compared to 32 percent in Vietnam.

Consumption growth remained robust last year, supported by remittances, which grew 6.4 percent from a year ago or equivalent to 8.4 percent of GDP.

World Bank senior country economist in the Philippines Karl Chua echoed Hofman’s recommendations and cited domestic risks, including unemployment.

Chua also cited the need for improved social spending as the country nears the election period.

“Another concern is the asset price bubble, wherein the Philippines is still on a moderate level,” he said, adding that crucial to controlling asset price bubble are the macro-prudential measures introduced by the Bangko Sentral ng Pilipinas to govern property or mortgage loans.

“Fortunately, the Philippines is still a moderate case,” Chua said in the press briefing yesterday.

Meanwhile, foreign direct investment (FDI) inflows grew to 1.4 percent of GDP from 1.1 percent in 2012. Policy restrictions on foreign ownership continue to stymie FDI.

Money supply grew 33 percent compared to an average 8.6 percent in the past five years. But that rate was apparently an aberration and a result of extraordinary action by the central bank to trim funds parked in its liquidity management facility. Restricting access to special deposit account has instead released liquidity to time deposits and money market funds as well as to real estate investments.