World Bank has better outlook for Philippines

By Rommer M. Balaba
Reporter

THE World Bank on Tuesday upgraded the Philippines’ economic outlook and endorsed government efforts at undertaking major fiscal adjustments.           Gross domestic product (GDP) should grow 5.5 percent this year from an earlier 5.3-percent projection, while 2007 output would be at 5.7 percent from 5.6 percent, the Bank noted in its twice-a-year East Asia Update.
           
GDP—the aggregate value of goods and services produced by the domestic market—expanded by 5.6 percent as of this June due to strong farm output, a continued inflow of migrant income and robust exports. Second-quarter GDP, meanwhile, was estimated at 5.5 percent.
           
San jay Dhar, the Bank’s local chief economist, added that factors that boosted the domestic economy in the first six months were also the main anchors on which the Bank based its growth projections for the Philippines, albeit below official targets: 5.5 percent to 6.1 percent for 2006 and 5.7 percent to 6.5 percent for 2007.
           
“The Philippines is coming off a major fiscal adjustment during the last two years… the [fiscal] deficit is falling and that is good news,” Dhar said in a briefing for reporters.
           
“Agriculture made a strong recovery while exports are doing well… the growth prospects are doing well because of the fiscal adjustments that occured which gives government room for expenditures,” Dhar explained.
           
Public spending, especially on infrastructure, may stimulate a 5 to 6 -percent growth that would eventually rub off on the private sector and, as capacity utilization increases, the need for investments should follow, he said.
           
The economist added that consumer spending would also aid economic growth, despite being “not in a typical growth pattern,” since the continued sending of workers abroad assures a sustainable pattern of household expenditures.
           
Dhar added it is also relative to the global oil prices which, as the commodity’s value increases, the demand for more workers in the Middle East also rises and will eventually mean more remittances back to the Philippines. “It actually acts as a hedging mechanism,” he said.
           
But Dhar also noted the economy’s performance in recent years, where growth had been anchored on less energy-intensive activities such as the services sector which copes better with oil-price increases.
           
The Bank nonetheless sees a downtrend in oil prices to about $60 per barrel next year from about $65 this year.
           
Dhar commented the government must not lose track of its continuing fiscal consolidation, particularly with national elections scheduled next year.
           
“It is important [for the government] to demonstrate, even on an election period, its fiscal targets remain and maintain good performance on its tax targets. This puts a good seal on the investors’ perspective,” Dhar said.

Business Mirror

November 15, 2006