Phl urged to speed up infra dev’t to sustain growth momentum

MANILA, Philippines - The Philippines needs to speed up infrastructure development and increase public spending to sustain its present status as the fastest growing economy in Asia.

In a report, Australia and New Zealand (ANZ) Bank said the Philippines is expected to outperform the rest of the region, although its capital outflows will continue to weigh on its equity market.

Over the past 14 weeks, an estimated $961.8 million in foreign capital held by fund managers flowed out of the Philippines. In the run-up to the sovereign investment-grade rating upgrade, Philippine bonds drew in more than $3.81 billion in foreign capital.

 â€œWe see potential further outflows in the coming months,” Eugenia Fabon Victorino, ANZ analyst for Asia Pacific, said in a report released yesterday.

Earlier, the bank forecast the Philippine economy to expand 7.1 percent this year.

The report pointed out that the Aquino government’s fiscal consolidated program reduced its debt-to-GDP ratio to 53.9 percent at the end of the first semester, from a peak of 91.7 percent in September 2004.

 â€œWe believe the government should now address the infrastructure bottlenecks and further boost public investment,” Victorino added.

With growth exceeding expectations and inflation held at bay, the Bangko Sentral ng Pilipinas (BSP) is expected to maintain its overnight reverse repo rate at 3.5 percent and the special deposit account rate at two percent.

 â€œThe economy is hardly in need of further support. Despite the upward pressure on our 2014 inflation outlook, we believe the BSP has enough room to keep rates steady,” the ANZ analyst said.

Meanwhile, the bank raised a cautious warning that developments in India and Indonesia could lead to a contagion risk through emerging Asia.

 â€œThe speed and depth of ongoing adjustment in India and Indonesia could lead to contagion risks through the rest of emerging Asia, though we think this is unlikely. There are not the same structures of current account deficits funded by short-term dollar liquidity to trigger a chain reaction across economies. Any stresses should be contained to India and Indonesia and the rest of Asia looks to be sufficiently firewalled to those developments,” it said.