Bottlenecks to growth will continue to keep the Philippine economic growth below pre-crisis levels, according to the Philippine Quarterly Update(PQU) released by the World Bank on Wednesday.
The bank said that the bottlenecks to growth include poor business climate, infrastructure,
education, and fiscal consolidation. The Washington-based lender revised its GDP projections for the Philippines upward from its PQU July 2009 edition.
Since the beginning of the crisis, the World Bank has released quarterly updates for the
Philippines. The last PQU was released last July 2009. In July, the bank projected that the
economy will post a contraction of 0.5 percent in 2009 and a growth of 2.4 percent in 2010.
However, the bank's projection remained at four percent in 2011 while downward revisions were made for growth in 2012 to 2013 to 4. 3 percent from 4.5 percent and 4.5 percent from five percent respectively.
"We are raising our GDP growth forecast to 1.4 percent in 2009 to 3.1 percent in 2010.
(However) the pace of expansion will be lower than before the crisis, as bottlenecks to growth become more binding constraints," the bank said in the Philippine Quarterly Update whose release coincided with the launch of the bank's November edition of the East Asia Update.
"Achieving more rapid and inclusive growth in the less hospitable post-crisis environment
-- one that would allow the country to resume convergence with the more advanced countries
in the region -- will depend on determined implementation of reforms to improve the business
environment, education and infrastructure, so as to enable companies to move closer to the
technological frontier, as well as maintaining sound public finances," the World Bank added.
The bank said that reforms have been put in place to address inadequate infrastructure
particularly in transportation and energy, weak investment climate due to governance concerns, and historically weak public finances.
However, the bank said these efforts have been in the pipeline for many years and no
significant achievements have yet been made to achieve these reforms.
Further, the bank said that these structural weaknesses may also be accompanied by an expected slow increase in export growth due to slow expansion in world trade volumes in 2010 and limited prospects for international market share gains.
"The post-global recession external environment facing developing countries is likely to be less favorable than before. While the Philippines was less affected by both the global financial crisis and the global recession, part of the reasons for this relative good performance can,paradoxically, be traced to structural weaknesses that have led to subdued growth on
average," the bank said.
The bank said that the main reasons why it revised its projection for the Philippine
economy upward from July was the better-than-expected Overseas Filipino
Worker (OFW)remittance growth. The bank now sees Overseas Filipino Worker's (OFWs) remittance
increasing by four percent in 2009 and five percent by 2010. The PQU said that typhoons Pepeng and Ondoy will even provide a positive boost to the country's economy. The report stated that recent research showed that remittances act as an
insurance to households affected by natural disasters.
In fact, the report stated, that an average of 60 percent of household income lost through
natural disasters is replaced by remittances. With the recent typhoons hitting Metro Manila where a large amount of middle and upper middle class households reside together with OFW beneficiaries, the bank expects remittances to increase.
However, even with a higher growth in remittance inflows, pre- crisis levels were in
double-digit growth. Further, while it was true that typhoons provide an opportunity to increase remittances, the typhoons only make hitting pre-crisis growth generally difficult.
"Remittances are staying strong. Government consumption and public construction will continue to benefit from the national government's spending in the remaining months of 2009.
So, based on new data, we believe the government growth forecast for 2009 to be entirely
feasible," said World Bank Country Director Bert Hofman.
The Development Budget Coordinating Committee (DBCC) forecast for 2009 was placed at 0.8 percent to 1.8 percent while the 2010 forecast was pegged at 2.6 percent to 3.6 percent.