WB cuts Philippine growth forecasts

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Election-related spending is expected to provide a one-time boost to growth, but the combination of a delay in enactment of the P3.757-trillion national budget and the 45-day public works ban ahead of the May 13 elections has derailed state spending plans this semester.

By Melissa Luz T. Lopez
Senior Reporter

THE World Bank scaled down its growth forecast for the Philippines as public spending will likely soften this year, together with concerns about the dry spell that could affect food prices and badly hit the poor.

In its Philippines Economic Update report, the multilateral lender now pegs 2019 growth at 6.4%, slower than its older 6.5% estimate even as the latest projection is still faster than last year’s actual 6.2% pace due to stronger private consumption.

However, World Bank senior economist Rong Qian said that domestic risks “have increased” with the delayed enactment of the P3.757-trillion national budget as well as the 45-day public works ban ahead of the May 13 elections that began on March 29 which are expected to derail government spending plans.

“The limited public spending may negatively impact the Philippines’ growth prospects for 2019,” Ms. Qian said in a press briefing on Monday.

Consumer spending — which is widely estimated to contribute 70% to overall economic growth — increased by a slower 5.6% last year as inflation surged to a decade-high 5.2%, with a nine-year peak of 6.7% seen back in September and October.

For 2019, the global lender expects consumption growth to recover to 5.9% and even strengthen to six percent next year as inflation eases, and amid more remittance inflows and with new jobs available in the country. Election-related expenses should also support faster expansion.

The central bank is growing confident that price increases will settle back to target this year as food supply issues are addressed, with the full-year pace now seen at three percent. However, the World Bank flagged that the El Niño could cause trouble.

“An intensified El Niño may lead to food supply constraints, affecting the poor and vulnerable the most as they are spending a relatively larger proportion of their income in food,” Ms. Qian said.

The World Bank’s estimate also falls within the government’s reduced growth goal of 6-7%, coming from 7-8% originally. This also factors in external risks from nagging trade tensions between the United States and China and weak demand for Philippine exports.

Ms. Qian said the bank expects the budget to be enacted “very soon,” with the measure now under review before President Rodrigo R. Duterte signs it into law. She added that this will pave the way for public investments to recover in the second semester as government tries to catch up on delayed projects.

The economist sees a narrower fiscal gap for the full year, as she flagged the need for “prudent” fiscal policies and for additional tax reforms to improve the state’s revenue collections.

The country is currently operating under a reenacted 2018 budget, which leaves new programs and even big-ticket infrastructure projects unfunded.

The World Bank also scaled down its growth estimates for 2020 and 2021 to 6.5% annually, down from 6.6% amid a slower world output. Ms. Qian added that the Philippines may feel the pinch via tighter financing conditions, which could make borrowing abroad more expensive.

Amid rapid economic growth, the global lender flagged the need for increased human capital investments in the Philippines, with quality of life still in the middle of the pack compared to other countries.

Gabriel Demombynes, program leader for human development for Brunei, Malaysia, Philippines and Thailand, said the Philippines ranks 84th of 157 nations in the World Bank’s Human Capital Index.

“On average, a Filipino child — in the absence of renewed efforts on human capital — will reach only 55% of potential in terms of lifetime income. But this is an average figure, some children face much more limited prospects,” he said, noting that index scores are much lower in Eastern Visayas and in the Bangsamoro region in Mindanao.

“The risk that the Philippines may be left behind by technological change is high,” the same report added.

Mr. Demombynes noted that budget support for social programs have risen “substantially” since 2010, but added that the country needs to focus on malnutrition in women and babies, improve the education system and implement the newly enacted Universal Health Coverage law.