The Manila Times-Apr 19
Economic growth in the Philippines, which has not only been among the fastest in Asia for some time but has also been remarkably consistent for the past several years, is certainly admirable, and a justifiable point of pride for the country. Recent news, however, has provided a bit of a reality check: The economic environment going forward will not be as hospitable as it has been, and it will require more effort to maintain the country’s growth momentum.
The latest of these potentially discouraging reports came from Japan’s Nomura, which suggested that official development assistance (ODA) from China may not have as significant an impact on the Duterte administration’s aggressive infrastructure building initiative as is hoped.
The promises of Chinese financial support are largely just that – promises – at this point, Nomura pointed out; January to November 2017 inflows of foreign domestic investment from China were a “tiny” $30 million, although that was a threefold increase from a year earlier. The problem is largely one of time management, Nomura suggested. The Philippines certainly can benefit from Chinese investment, but the projects that investment is intended to fund need to start soon, lest they be put at risk of being derailed by the change in the country’s administration in 2022.
Nomura’s views were a complement to the outlook of the International Monetary Fund (IMF) released a little earlier, which maintained the IMF’s growth forecast at 6.7 percent for this year, with a mild acceleration to 6.8 percent in 2019. While the IMF report had a very positive tone, pointing out that the Philippines’ fiscal position is quite stable and its anticipated growth rate will remain among the highest in Asia, there is a bit of a subtext in the report that should give us pause.
The 6.7 percent IMF forecast for this year and 6.8 percent for next year are below the government’s targets of 7.0-8.0 percent. Furthermore, by predicting what amounts to a constant growth rate over a three-year period (6.7 percent in both 2017 and 2019, 6.8 percent in 2019), the IMF is implying that the government’s large-scale economic initiatives – the tax reform and infrastructure development programs – intended to push the growth rate to the stratospheric 7.0-8.0 percent range, are not actually going to be enough to accomplish that.
Both the IMF and Nomura outlooks cited the potential risks of global economic uncertainty to the Philippine economy, in particular the growing trade dispute between the US and China, along with tightening economic conditions elsewhere and the possible effects of geopolitical crises.
As if on cue, the Philippine Stock Exchange index (PSEi) responded with one of its worst days in nearly a year; the benchmark index retreated nearly 2 percent to below the 7,800-point level, driven mostly by worries about global events in the wake of air strikes on Syria over the weekend. The stock market may not be a good indicator of the overall health of the economy, but it is a fairly good indicator of the confidence of investors in the economy, how it will fare against the rest of the world, and how it will affect the prospects of businesses in the country in the near term.
On that score, Tuesday’s disappointing market turnout was something less than a ringing endorsement.
The real message in these various judgments about the Philippine economy is a warning against complacency. Much has been achieved, and it has resulted in a respectable level of economic growth. But having set the country’s aspirations even higher, the nation’s leaders need to do more to achieve them, transforming appealing plans to tangible action more quickly.
(first published in The Manila Times – http://www.manilatimes.net/reality-check-on-economic-expectations/393522/)
