Phl growth to recover 'lost decades' - IIF

MANILA, Philippines - The Philippines is on the verge of regaining decades lost to slow growth, thanks to government efforts to instill confidence that have kept the country on the investors’ radar even amid financial volatility.

“The restoration of macroeconomic balance has helped insulate domestic conditions from recurring global financial turmoil and volatile capital flows,” the Institute of International Finance (IIF) said in report dated Aug. 14.

“The key issue for the near-term outlook is maintaining macroeconomic stability. The strong growth at the turn of the year was not a transitory phenomenon, but evidence that the economy was regaining momentum,” it added.

IIF— a group of global financial institutions— noted the economy could surprise with a 7.5-percent growth this year, faster than last year’s 6.8 percent, following the first-quarter uptick of 7.8 percent.

Part of the reason for the sterling performance, the group said, was the Philippines’ “rising global prominence” hinged on the Aquino administration’s budget discipline and improving public governance.

As of the first semester, the budget deficit was P51.29 billion, far below the period’s cap of P84.656 billion, putting the government “on track” at containing the gap between revenues and spending at 2.1 percent of economic output.

Debt levels have also been declining, the IIF said, noting that the debt ratio of 49 percent as of the first quarter was significantly down from its peak of 74 percent in 2004. The government targets a ratio of 44 percent this year.

“The long and difficult progress made by the government in restoring fiscal control, maintaining macroeconomic balance and strengthening public governance is paying off,” the IIF  added.

In addition, the Bangko Sentral ng Pilipinas’ (BSP) record of keeping inflation at “historically low” level of 2.9 percent as of July, boosted reserves at $82.9 billion and “structural current account surplus,” is also noteworthy.

Partly due to cuts made on special deposit account rates, money supply, which grew 20.3 percent as of June, has been “robust,” helping support economic activity, at the time foreign investors globally were returning to the US on signs of recovery.

“While robust recent expansion in liquidity raises concerns about the potential for the economy to overheat, it is important to emphasize the economy is not overheating at present,” the IIF said.

Taken together, fiscal and monetary reforms were recognized by recent upgrades to investment grade status, which the IIF said were recognition that the Philippines is a “destination for international investment.”

Proof of that is the Philippine Stock Exchange index (PSEi) rally to 14.5-percent growth for the first seven and a half months, while the peso has rebounded to 43 to a dollar territory in mid-August despite prospects of quantitative easing (QE) withdrawal.

"Decades of subpar economic growth, which has saddled the country with high poverty rates, inadequate infrastructure facilities and shallow capital markets, have been overshadowed by an impressive rise in living standards,” the IIF said.

“The limited adverse impact of the global financial crisis and the resilience of the economy to recurrent bouts of financial turmoil…underscore the favorable fundamentals,” it said.

The PSEi closed at 6,525.95 on Friday, down 0.83 percent, while the peso averaged 43.79 to a dollar as of 3:15 p.m.