The Good News for the Philippines economy is that not all the news is Bad News.
Often regarded as the ‘sick man’ among Asia’s western orientated economies (in other words all, excluding Burma and North Korea) the Philippines will suffer along with everyone else in the global economy. But it could be a lot worse and the pain may even be ‘manageable’ (sic).
World Bank Quarterly Update on the Philippines - November 2008
Overview
Philippine economic performance has decelerated in 2008.
Growth in the first half slowed to 4.6 percent from over 7 percent last year. Higher food and fuel prices have caused real household income to decline, pushing private consumption growth to its lowest level in years. Public sector consumption and investment spending were even weaker, contracting in real terms. Similarly, the services sector also slowed. Growth to date has been buoyed instead by private investment and non-factor service export on the demand side and agriculture and manufacturing on the supply side.
In addition, the recent global slowdown arising from the financial turmoil has also taken its toll on the performance of the external sector, notably through merchandise exports and foreign investment inflows.
 |
|
Slower growth in partner countries and higher oil and food prices have bloated the trade deficit. Remittances, however, have remained robust, and have kept the current account in moderate surplus.
Direct investment inflows have diminished but remain positive so far. Portfolio investment has been more adversely affected by the financial market turmoil and global risk aversion. Nonetheless, the overall balance of payments has remained in surplus and enabled the country to continue to accumulate international reserves. |
Despite the twin challenges of slower growth and higher inflation, the situation is expected to remain manageable.
|
The Philippines is in a better position to weather the uncertainties brought about by the recent global slowdown and escalating fuel and food prices given the fiscal and other reforms it has undertaken in the last several years. With the appropriate fiscal and monetary policies, short-term growth prospects can be improved while inflationary pressures contained. Nevertheless, a significant slowdown in the economy is likely, and growth is projected to slow to 4 - 4.5 percent this year, and 3 - 4 percent next year. |
|
 |
It is in this light that the Philippines must consolidate its fiscal position and improve revenue efficiency so as to limit fiscal risks and increase the quality of spending.
 |
|
Increasing tax revenues remains the key immediate challenge. Without it, the budgeted higher infrastructure, social services, and social protection spending may not be feasible. New tax policies and better tax administration are needed to raise revenues to more sustainable levels. In the area of tax policy, improving the structure and rates of tobacco excises and rationalising fiscal incentives can boost revenues and have social and economic benefits. Institutionalising third party data sharing with the BIR and enhancing tax enforcement activities can have a significant and immediate impact on compliance. |
On the expenditure side, improving spending quality and its composition - and in particular the targeting of the social safety net, and capital spending efficiency - are paramount to improve the social, human, and physical capital of the economy in times of challenging global prospects.
Philippines Quarterly Update - November 2008
