Multilateral lender World Bank has nothing but praise for the Philippines, observing that it is moving toward more inclusive, sustainable growth that can further slash poverty, and forecasting its leadership in the region in terms of economic growth in 2015 and 2016.
Despite bureaucratic inefficiencies (the government has been spending much less than it has programmed, depriving the public of essential services), the positive prognosis has been traced to the fact that other economies around the world are facing stronger head winds. Besides, the Philippines can always rely on its own growth drivers—the more than 10 million Filipinos working overseas who send home nearly $2 billion a month, the burgeoning BPO (business process outsourcing) sector that earns billions of dollars as well, and a regime of low interest rates and inflation that is conducive to business expansion. Externally, something going for the Philippines is the depressed prices of crude oil (it imports nearly all of its petroleum requirements).
For 2016, a particular growth driver is the increase in consumer spending due to the national elections scheduled in May.
Rogier van den Brink, World Bank lead economist in the Philippines, told members of the media last week on the sidelines of the Asia-Pacific Economic Cooperation Senior Finance Officials’ meeting in Bataan that the country has “achieved macroeconomic stability, high growth rates, and more recently is starting to show the kind of growth which is more inclusive.” In a report released Friday in Washington, the World Bank also kept its growth projections for the Philippines at 6.5 percent in 2015 and 2016 and 6.3 percent in 2017.
Van den Brink was not worried by the government’s underspending in the first quarter, which had largely been blamed for the slower-than-expected 5.2-percent GDP growth. He said the Aquino administration was already working to ramp up public spending, such that the rest of the year should show improved expenditures.
The big story, according to the economist, is that the Philippines has established a clear trajectory toward growth that is more inclusive, which can be sustained if economic reforms continue. He said that about 20 or 30 years ago, reports on the Philippines were all about boom-and-bust cycles related to macroeconomic instability. Real growth was low, inflation rates were high, the current account balance was negative, budget deficits were high, and national government debt was soaring. But in recent years, he observed, such issues were no longer major concerns because real growth was ranging from 5 to 7 percent, prices had stabilized, the current account was registering surpluses, and Philippine finances were stronger than ever.
The World Bank’s prognosis for much of the rest of the world is different. In its latest Global Economic Prospects report released last week in Washington, it warned that developing countries are facing a series of tough challenges in 2015, including the looming prospect of higher borrowing costs as they adapt to a new era of low prices for oil and other key commodities, resulting in a fourth consecutive year of disappointing economic growth. Developing countries are now projected to grow by 4.4 percent this year, with a likely rise to 5.2 percent in 2016 and 5.4 percent in 2017.
“Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment,” lamented World Bank Group president Jim Yong Kim. The US Federal Reserve’s forthcoming first interest rate hike since the global financial crisis can ignite market volatility and reduce capital flows to emerging markets. Lower prices for oil and other strategic commodities have intensified the slowdown in developing countries, many of which depend heavily on commodity exports.
The Philippines is indeed in a sweet spot. But moving forward, it will do the government well to heed the advice of the World Bank president: “We believe that countries that invest in people’s education and health, improve the business environment, and create jobs through upgrades in infrastructure will emerge much stronger in the years ahead. These kinds of investments will help hundreds of millions of people lift themselves out of poverty.”