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PHL growth prospects intact: ADB official

Posted on May 06, 2017

YOKOHAMA, Japan -- Philippine growth prospects have remained intact amid political dust raised under the administration of Rodrigo R. Duterte and should remain so provided the government stays the course in its infrastructure focus, raises more revenues and improves governance, a senior official of the Asian Development Bank (ADB) said in an interview on Friday.

The Asian Development Outlook 2017 showed projections for Philippine GDP growth at 6.4% and 6.6% for this year and 2018. -- REUTERS
Moreover, the Philippines’ improving relations with China means the former can better ride the pickup in the global giant’s economy. As it rebalances its economy from one that is export-driven to one that is fuelled largely by domestic consumption, China saw gross domestic product (GDP) grow by 6.7% in 2016 -- the slowest in 26 years, but within an official 6.5-7% goal.

“[W]e have seen a lot of consistency in macroeconomic policies and management and we have seen a sort of consistent trajectory in terms of that side of managing the economy,” Stephen P. Groff, Asian Development Bank (ADB) vice-president for East Asia, Southeast Asia and the Pacific, told BusinessWorld after a seminar held at the PACIFICO Yokohama conference complex at the sidelines of the 50th meeting of ADB’s Board of Governors.

“We are very encouraged by the focus that the Duterte administration has placed on infrastructure investment and the ‘Build-Build-Build’ initiative that they launched... is a great example of a good, good focus on infrastructure investment which will be critical to underpin continued growth in the Philippines.”

Mr. Groff’s views are generally shared by ADB Chief Economist Yasuyuki Sawada, who said last May 3 here that while “potential risk from domestic political turbulence is a little bit worrisome... our growth rate forecast will continue” on “sound domestic consumption and very active domestic investment”.

Infrastructure is a top priority of the current administration, which plans to spend some P8-9 trillion from 2017 up to 2022, when it ends its term at end-June that year. In terms of percentage of GDP, spending on infrastructure is projected to grow to 7.1% by 2022 from a programmed 4.3% in 2015 and from 1.8% in 2010.

This year’s P3.35-trillion national budget programs spending on public infrastructure to increase 13.79% to P860.7 billion, equivalent to 5.4% of GDP, from P756.4 billion, or 5.1%, initially targeted in 2016.

Infrastructure spending hit P493 billion in 2016, up 42.8% from 2015, but fell 7.5% short of a downwardly adjusted P533.1-billion program. That shortfall, however, was still better than 2015’s 20% gap.

The government’s “Build Build Build” initiative consists of high-impact projects aimed at raising the economy’s productive capacity, generating jobs, increasing incomes and strengthening the investment climate in order to drive growth faster that, in turn, will lift more Filipinos out of poverty.

“I think a continued focus again on increasing infrastructure spend[ing] is important. I think a continued focus on governance is critically important. I think raising and broadening tax revenue is very very important in order to have sources of revenue that are going to finance infrastructure investments over time,” Mr. Groff said.

The first of four tax reform packages -- which cuts personal income tax rates and seeks to make up for estimated foregone revenues by raising excise tax rates on cars and fuel -- this week hurdled the House of Representatives Ways and Means committee and is on its way to plenary approval, but it faces renewed scrutiny in the Senate.

The first package is estimated to yield some P206.8 billion in additional revenues in the first year of implementation, consisting of a net P162.5 billion from the tax collection component and P44.2 billion from tax administration improvement. The Finance department had wanted to secure its approval by both chambers by midyear in order for the reform to contribute to this year’s revenues.

“[R]ight now, again, I think the biggest risks across Asia, not to mention the Philippines, are larger geopolitical issues or unexpected major policy changes in advanced economies... and also how things continue to progress in China and, certainly, the Philippines is not insulated from that,” Mr. Groff added.

“We are encouraged by the fact that Philippine relations with China is growing and deepening, and we think that just bodes well for future growth prospects for the Philippines.”

Mr. Duterte, who will mark his first year in office at the end of next month, had initially jolted the Philippines’ long-time allies and trade partners by announcing during a visit to Beijing in October last year his “separation” from the United States. His economic managers have since clarified that the President was referring to a more balanced foreign policy that puts a priority on Southeast Asia, plus neighbors China, Japan and South Korea, even if the Philippine economy remains inextricably linked to the US.

“So I think all of these things are equally important and I think there is a focus by this government on these issues, so we are quite encouraged by that,” Mr. Groff said.

The Asian Development Outlook 2017, which ADB released last month, showed projections for Philippine GDP growth at 6.4% and 6.6% for this year and 2018, respectively, from 2016’s upwardly revised 6.9% actual pace. The Philippines’ projected performance compares to expectations of 4.8% and 5.0% for Southeast Asia in the same respective years from 4.7% in 2016, as well as to 5.7% for this year and next for 45 of ADB’s 67 member economies from last year’s 5.8% average.

ADB’s projections compare to the government’s own targets of 6.5-7.5% this year and 7-8% in 2018. -- Wilfredo G. Reyes