Spend to grow according to the World Bank

Here’s a similar advise from a World Bank economist on what the country should do to grown the economy: spend it. Spend it on infrastructure. Spend it on education. Spend it on better access on credit.

From BusinessWorld Philippines

May 23, 2012

Philippines told to invest

THE WORLD BANK has urged the Philippines to take advantage of its resilience to global economic uncertainty to make much-needed investments for long-term growth.

“The external environment looks bleak and uncertain, but the Philippines is in quite a strong position to absorb these shocks,” World Bank Lead Economist Rogier J. E. van den Brink said in a press conference in Pasig City yesterday.

The country enjoys strong macroeconomic fundamentals, Mr. van den Brink noted, and the fiscal deficit and inflation are at “reasonable levels.”

The deficit fell to just P2.885 billion as of April, well below the ceiling of P109.341 billion for the first semester, while inflation stood at only 3% as of April, hitting the bottom of the central bank’s 3-5% target.

Moreover, the Philippines is not as dependent on Europe for its exports, hence, debt troubles there should not have significant impact on the country’s economic growth, Mr. van den Brink said.

The view is echoed in the East Asia and Pacific Economic Update the World Bank released yesterday, titled: “Capturing new sources of growth,” which noted that “for some East Asian countries, including Japan, the Philippines, and Hong Kong…this sensitivity (to European demand) even declined.”

“The banking sector here is also sturdy and remittances have acted as a stabilizing factor,” he added.

With the Philippines set to ride out any more shocks from Europe, the World Bank called on the government to use current stability as an opportunity to address “long-term economic issues.”

“The country has a big infrastructure deficit, and it has long been a growth constraint. This is the moment to invest in good, well-created [sic] projects,” Mr. van den Brink said.

The Philippines can turn to domestic capital markets for financing, especially since international banks are currently under stress, he explained.

The government can also provide funding from increased revenue collections. “We are pleased with the momentum behind the ‘sin’ tax bill and the fiscal incentives bill,” he remarked.

The Aquino administration already has a list of priority infrastructure projects, particularly under its public-private partnership program, but Mr. van den Brink recognized there have been “problems in implementation.”

Nevertheless, he played down the delay, explaining that big-ticket infrastructure deals need to be prepared well. “The government should go as fast as possible, but with good projects. There is no sense in pushing bad projects,” he said.

Another problem area for the Philippines is labor productivity. According to the World Bank, jobs here are mostly created in the informal sector, particularly in retail trade and involving unskilled work. Together with high levels of poverty and hunger, the country’s labor market suffers from structural weaknesses. “The government must invest in its people, through education and capital,” Mr. van den Brink said.

This is all the more critical, as the rest of East Asia is set to experience a demographic decline from now until 2025. A young, vibrant work force has propelled regional growth since 1998, but countries like China, Indonesia and Vietnam face a decline in their working population in the next 15 years, he explained. “The Philippines doesn’t have that problem. The country can provide the labor and the markets needed by the region. If it can seize that opportunity, it can carry that demographic dividend for many generations to come,” he stressed.

The World Bank expects the Philippines to grow 4.2% this year and 5% next year. While these rates fall below the government’s 5-6% and 6-7% targets, respectively, the forecasts are still a marked improvement from the 3.7% gross domestic product growth in 2011.

In comparison, East Asia is projected to grow 6.3% this year and 7% in 2013. While these are drops from the 9.3% and 7% seen in 2010 and 2011, they outpace estimates for global growth, projected at 2.6% in 2012 and 3% in 2013.

Excluding China — whose growth is forecast to slow to 8.2% this year from 9.2% in 2011, picking up slightly to 8.6% in 2013 — the region is expected to grow 5.2% this year and 5.6% in 2013 from 2011’s 4.3%.

In its report, the World Bank noted that while the region remains strong, it should be watchful of continued uncertainty in the European Union and its impact on trade and finance. “A serious disruption in the EU would have knock-on effects on East Asia’s exports and growth… Moreover, European banks provide a third of trade and project finance in Asia,” the report read.

The World Bank urged the region to rebalance economies by moving away from exports and relying more on domestic demand.

“Some countries will need to stimulate household consumption, while in others, higher investment (particularly in infrastructure) offers the potential to sustain growth…” it said.

The World Bank likewise warned that European banks are expected to de-leverage as much as $2.6 trillion, in anticipation of a recession back home this year.

However, this could be a chance for regional banks — such as those from Japan and Singapore — to step up.

“Yet, most developing East Asian economies are well positioned to weather renewed volatility. Domestic demand has proved resilient to shocks, most countries have current account surpluses and hold high levels of reserves, and banking systems are generally well capitalized,” the report read.

Article location : http://www.bworldonline.com/content.php?Section=TopStory&title=Philippines told to invest&id=52261

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