The World Bank is not convinced that the efforts of the Philippine government to cushion the local economy from the global economic crisis are enough. The multilateral lender is projecting a dismal 1.9 percent growth this year, a far cry from the government's target of 3.7 to 4.4 percent.

In a report launched on Tuesday, the World Bank said the economic slowdown is already taking its toll on Filipinos who are now faced with bleak work options. It noted that as of March 2009, there are about 75,000 Filipinos working abroad, employed in local fledging export-oriented factories, and those affected by reduced work hours.

But Vikram Nehru, World Bank’s chief economist for the East Asia and Pacific Region, told reporters in a briefing that current jobless numbers are not yet reflective of the full extent of the economic slowdown since there is usually a lag. He said a better measure of the slowdown’s pressure in the labor market is real wage level.

The economist pointed at current trends of Asians taking on work even if it pays them lower than their previous jobs. He said there is a “shift from formal to informal jobs.” Particularly vulnerable are Filipinos who lose their jobs abroad.

“Migrant labor is unlikely to return, as the case in the Philippines. [But those who will return home would] further depress real wages as they’ll seek employment [here],” Nehru said.

The jobs and wages levels become the trickle effect of a local economy faced with an economy that is sharply slowing down from a high of 7.2 percent in 2007 to—as the World Bank estimated in its East Asia Update report—just 1.9 percent this year.

World Bank’s growth estimate for the Philippines is more pessimistic than the 2.5 percent and 2.25 percent respective projections of the Asian Development Bank (ADB) and the International Monetary Fund.

However, compared to two of our Asian neighbors, World Bank expects the Philippines to better weather the global economic slowdown with just a 2.7 percent decline from 2008’s actual growth of 4.6 percent.

Peer countries Malaysia and Thailand are expected to shave off 5.6 percent and 5.3 percent from their 2008 economic growths. Both are expected to post negative growths of 1.0 percent and 2.7 percent, respectively.

But compared to others, the Philippines again will lag behind neighbors like Indonesia and Vietnam. Indonesia is seen to expand by 3.4 percent due to global commodity prices and tighter global financing while Vietnam—our late-bloomer neighbor that is now zooming ahead—is projected to slightly slow down to 5.5 percent this year against 6.2 percent last year.

China, for instance, is expected to grow at 6.5 percent despite the challenging external environment, thanks to its government's substantial policy stimulus.

The World Bank expects the Philippine economy to slightly recover by 2010, when it is projected to inch up to 2.8 percent.

It said the factors for recovery include improvements in the labor market and remittances.

Remittances

The World Bank attributed the Philippine’s 2009 economic outlook to two main culprits: the country’s vulnerability to a slowdown in the amount sent home by Filipinos working abroad and an ambitious size of the stimulus package, which could have a limited impact and be undermined by weak tax collections.

"Domestic demand, boosted to a large extent by strong remittances since 2001, has been the most important growth driver for the economy," the report said.

Last month, the World Bank said money sent home by overseas Filipino workers (OFW) will contract by 4.4 percent this year as a result of the global slowdown, lower than the bank's projected 5 to 8 percent fall in remittance flows to developing countries. The latest outlook was also bleaker than the previous forecast of 0.9 to 5.7 percent the World Bank made in November last year.

But Bangko Sentral ng Pilipinas (BSP) is more optimistic. It said remittances are likely to stay flat in 2009 at around last year's level of $16.4 billion. In January, the BSP reported a 0.1-percent growth in remittances compared to the same period last year.

Stimulus plan limited

The multilateral lender described the government’s P330 billion stimulus package (labeled the Economic Resiliency Plan or ERP) as “ambitious” since it accounts for 4.1 percent of the country’s gross domestic performance.

The ERP is focused on providing jobs, even if temporary, to those who are displaced as their employers, whether here or abroad, close shop or reduce operations as worldwide sluggish consumption and credit flows squeeze their ability to stay afloat.

The World Bank cited the government for postponing its medium-term balanced budget goal in 2011 to make way for the hiked spending. It noted, however, that the actual impact of the stimulus package in 2009 would be limited as government spending plans could be undermined by a huge budget deficit, no thanks to lower-than-target tax collections.

Last month, Finance Secretary Margarito Teves maintained that the country's budget deficit will stay at P177.2 billion this year as it has set in February. Teves made the statement in response to Socioeconomic Planning Secretary Ralph Recto's projected P257-billion budget shortfall for 2009, provided that tax collections fall short of target, the state fails to sell assets, and imports shrink by around 10 percent.

To undertake a credible and controlled fiscal easing in 2009, the World Bank called for improved taxation measures.

The ADB has previously warned that the Philippines cannot sustain wider budget deficits for an extended period especially with the ongoing economic crisis.