World Bank sees PHL’s 2019 growth at below 6%
THE World Bank adjusted downward its growth forecast for the Philippines this year, as the Washington-based lender believes that the government’s catch-up spending plan will fall short of expectations.
From 6.4 percent in April, the World Bank slashed the growth outlook to 5.8 percent for 2019. In a recent briefing on the Philippine Economic Update (PEU), World Bank Country economist Rong Qian told reporters that will likely be caused by “implementation challenges that might prevent a full catch up” from happening.
Qian said these implementation challenges include procurement issues, such as the length of time needed to complete the process, as well as the absorptive capacity of both the public and private sectors.
“Procurement is longer than the rest of the year [so] probably the agency will not procure and that is one of the reasons the catch-up plan cannot be fully fulfilled. And I think another challenge is absorptive capacity,” Qian said.
“The budget delay caused some accumulation of projects and now that the budget has passed, they all go to the market at the same time, and the private sector, especially in the construction sector and some small LGUs [local government units], they don’t have the absorptive capacity,” she added.
Qian said even national agencies, such as the Department of Public Works and Highways (DPWH) and the Department of Transportation (DOTr), also have problems with absorptive capacity.
These agencies, Qian said, continue to record low disbursement rates this year. Ideally, she said the government should be spending more given the higher budget that they were granted this year.
“On the spending plan, the projected fiscal deficit is 3.2 percent of GDP for 2019 and given that we don’t expect the whole catch-up plan to materialize, that is unlikely to be reached. We factored that in our projection,” she said.
The Washington-based lender has a more sanguine growth outlook for 2020 and 2021, as it expects Philippine economy to expand by more than 6 percent.
The World Bank said the hike in GDP will reach 6.1 percent next year and 6.2 percent in 2021. It expects public sector investment to fuel the country’s economic engines.
Qian said the Duterte administration’s priority of increasing infrastructure spending will allow the country’s growth to breach 6 percent in the next two years.
Also, once the verdict on tax reforms has been handed down, Qian said she expects the inflow of private-sector investments to further boost GDP growth.
What could weigh down the country’s growth engines, she said, is the possibility of another recession in advanced economies. “Advanced economies are all showing signs of growth slowing down with increasing risks of recession.”
Qian added, “Trade policy uncertainty has spurred after two decades of stability. In this context, global growth is expected to decelerate from 3 percent in 2018 to 2.5 percent in 2019, and global trade is expected to slow sustainably from 4.1 percent in 2018 to 2 percent in 2019, the lowest since the 2008 financial crisis.”
The Philippines could counter these headwinds given its low inflation environment, which has given the Bangko Sentral ng Pilipinas (BSP) some policy-adjustment space even if it has already cut 75 basis points this year, according to the World Bank.
GDP expansion of more than 6 percent will help sustain the country’s poverty reduction efforts, along with the “expansion of non-agricultural wage employment, the rising real wage, and continuation of social programs.”
The PEU read: “The declining trend in poverty is likely to continue in 2019-21. Medium-term poverty projections based on the middle-income poverty line of $3.20/day show the poverty rate declining from 26 percent in 2015 to 20.8 percent in 2019, 19.7 percent in 2020, and 18.7 percent in 2021.”
The National Economic and Development Authority (Neda) said the rise in incomes, particularly among the poorest Filipinos, contributed to the slowdown in average poverty incidence nationwide to 21 percent in the first semester of 2018 from 27.6 percent in the same period in 2015.
Based on PSA data, the BusinessMirror computed that the highest increases in poverty incidence were in Basilan and Isabela City, where poverty incidence worsened to 65.3 percent and 52.6 percent, respectively, in the first semester of 2018.
Poverty in Basilan increased by 36.5 percentage points from 28.8 percent while in Isabela City, it increased by 31.97 percentage points in the same period in 2015. Neda said that while inflation increased to 8.1 percent between 2015 and 2018, from 7.8 percent in 2012 to 2015, average income managed to grow by 21.2 percent.