PH seen growing 6.5-7.5 percent in next decade

Posted at 02/10/14 7:43 AM

MANILA, Philippines - The Philippine economy is expected to continue expanding between 6.5 and seven percent in the next decade but London-based Capital Economics warned that the change in leadership in 2016 could be a major setback for the country.

“Overall, we remain fairly upbeat on the Philippines and believe growth will average around 6.5 to seven percent over the next decade,” Gareth Leather, economist at Capital Economics, said in the latest Emerging Asia Economics Weekly.

“However, a note of caution is probably in order amid uncertainty over who will replace President (Benigno) Aquino whose term in office comes to an end in 2016,” he said.

Leather said that the current “reform-minded” government has opened doors for the economy to shore up investments and improve the business environment.

“Among the most important reforms have been a crackdown on corruption; new legislation to control population growth; public-private finance initiatives aimed at improving the country’s infrastructure; and a peace agreement with Islamic insurgent groups,” Leather said.

These reforms have allowed the country to move up rankings on the World Economic Forum and the Heritage Foundation’s surveys with regard to business environments and progress on implementing changes in the government, he added.

“The election of another reform-minded president would provide a major boost to the country’s prospects. However, there are clearly no guarantees this will be the case,” Leather said.

“Indeed, there is a danger that Mr. Aquino will be followed by a weak incompetent or corrupt leader who fails to build on, or even reverses, the progress that Aquino has made in his first few years as president,” he said.

The Philippine economy expanded by 7.2 percent last year, surpassing market and government expectations.

The country also boasts of its investment grade ratings received from global debt watchers Standard & Poor’s, Fitch Ratings, and Moody’s Investors Service last year.

Aside from the uncertainty of whether winners of the 2016 presidential elections would sustain reforms, Leather said the country still enjoys a “reduced risk of an external crisis.”

The country’s balance of payments surplus amounted to $5.085 billion last year. While gross international reserves amounted to $78.939 billion in January.

“The large current account surplus and the resulting lack of dependence on foreign financing limits the country’s vulnerability to sudden capital outflows,” Leather said.

“It has been notable that the Philippines has been relatively unscathed by market turbulence of the last year. That has allowed the central bank to keep interest rates low to support growth, which stands in stark contrast to India and Indonesia, where central banks have been forced into raising rates,” he said.

Another positive factor for the Philippine economy is its improving fiscal position, the economist said.

The government debt to gross domestic product ratio has now gone down to less than 40 percent from a peak of under 70 percent in 2003, an indicator that the possibility of a sovereign debt crisis is very small, Leather said.

He added “with less money now being spent on debt repayment, the government has more resources to spend on infrastructure, education and healthcare, which can raise productivity and drive long-run growth.”

The country’s healthy demographics can also provide a boost to long-term growth, a stark contrast to other economies with ageing population.

“Provided jobs can be found for this people, a rapid increase in the working age population can boost growth by increasing the productive potential of the economy,” Leather said.