World Bank trims Phl growth forecast anew

MANILA, Philippines - Slower growth, weak government spending and monetary policy tightening prompted the World Bank on Thursday to lower its growth projections for the Philippines this year and in 2015.

The Washington-based lender said it expects the Philippine economy to grow by 6.4 percent in 2014, down from its previous June forecast of 6.6 percent. Similarly, gross domestic product (GDP) growth in 2015 is expected to hit 6.7 percent, down from June's 6.9-percent projection. In January, the bank said it expected the Philippine economy to grow by 6.5 percent in 2014 and 7.1 percent in 2015.

"After recording strong growth in the last two years, Philippine economic growth decelerated to 5.7 percent in the first quarter of 2014," the World Bank said. It added that while the services sector and private construction remain to be the main drivers of growth, their contribution was muted by weak government spending.

Despite slower growth prospects, however, the multilateral financial institution said strong domestic demand would continue to support overall growth.

"Private consumption is expected to contribute more than half of GDP growth, supported by strong inflow of remittances. Ongoing and recently awarded public-private partnership projects equivalent to around 1.5 percent of GDP are also new sources of growth. Finally, an acceleration of reconstruction spending can support growth at above 6 percent," the bank said.

While economic growth in the country will likely remain above 6 percent at least in the near-term, the bank said a number of external and domestic factors could pose risks to growth.

"External risks could come from disorderly policy normalization in high-income countries, a disorderly adjustment in China’s property market, political tensions in the Middle East and Eastern Europe, and territorial disputes in the region. On the domestic side, the main sources of risk are slow reconstruction spending and domestic reform lags, in particular reforms to raise tax revenues needed to raise infrastructure and social services spending," the World Bank said.

Looking forward, the bank said the Aquino goverment should pursue more structural reforms and invest more in human and physical capital.

"Key structural reforms include protecting property rights, promoting more competition, and simplifying regulations," the bank said.

It added that the government's plan to spend big on infrastructure by as much as 5 percent of GDP should come with new sources of revenues.

"This can be achieved through a package of tax policy and administrative reforms. There is scope to increase tax revenues by broadening the base to making the tax system simpler, more efficient, and more equitable, while simultaneously lowering certain tax rates to increase the political feasibility of such a package," the World Bank said.

The bank said the Aquino administration was effective in raising the tax effort by 1.2 percentage points of GDP in the last three years through the sin tax reform, improved tax administration and higher growth. The government needs to speed up the reform momentum to yield additional tax revenues needed to boost growth, the bank said. It also took note of the government's effort to reduce the poverty incidence in the country.

"After many years of slow poverty reduction, poverty incidence declined by 3 percentage points from 27.9 percent in 2012 to 24.9 percent in 2013, lifting 2.5 million Filipinos out of poverty. And in April this year, the economy has created 1.7 million jobs," World Bank Lead Economist for the Philippines Rogier van den Brink said.

"With further economic reforms, especially in areas which will have more impact on the lives of the poor, the government can help put the country on an irreversible path of inclusive growth and meet the jobs challenge," the World Bank said.