Visiting American economist Nouriel Roubini hailed the Philippines as an “economic success,” citing the country’s potential to move toward a higher growth rate of at least 7 percent a year.
But Roubini said more structural reforms were needed to ensure “sustainable” and “cohesive” growth beyond President Aquino’s term in 2016.
In an investment forum organized by First Metro Investment Corp., Roubini was mostly upbeat on the Philippines, which he believed deserved a sovereign investment-grade rating for its fiscal reforms.
“There’s renewed interest among investors, recognizing changes in the policy of the country such as in fiscal policy,” said the economist, who shot to fame as the “prophet of doom” who predicted the collapse of the US housing market that led to a global economic crunch in 2008-2009.
Roubini said the success story of the Philippines was a result of a sophisticated private sector, and strong governance and reform policies.
Anemic global recovery
His favorable view on the Philippines came amid an anemic global economic recovery. He predicted a global growth of only 3 percent, more cautious than the International Monetary Fund’s forecast of 3.5 percent.
Roubini noted that the US political system was dysfunctional and that this political gridlock would likely be a continuing source of noise for the economy.
While risks of a euro zone breakup had been averted, he said there were remaining risks on peripheral countries and in the case of China, risks of hard landing could not be ruled out for next year.
Rich human capital
As for the Philippines, he said the country had the potential to achieve a higher growth rate given its rich human capital—a large pool of young, literate and English-speaking citizenry from which the country could derive dividends.
Roubini cited the significant amount of remittances from overseas workers, the rising middle class and consumer-oriented society.
He also noted the country’s rich natural resources, which could help boost the agriculture sector and build a manufacturing base, and ongoing diversification in economic activity.
While outsourcing accounted for large part of the economy, tourism can play a bigger role, he said.
The American economist said mining could be a more significant contributor to the local economy and a magnet for investments if more projects were allowed while being mindful of environmental issues.
Roubini recognized the country’s “sound” monetary policy and commitment to inflation—targeting, saying that inflation could stay at 3 percent or below this year, aided by a strong peso.
Also working in the country’s favor was a strong democracy, a much-improved governance framework and a popular leader, Roubini said.
On the other hand, Roubini enumerated a number of constraints to growth in the Philippines, including the potential impact of rapid peso appreciation on the competitiveness of exporters and the business process outsourcing.
Another challenge was a prolonged period of low interest rates that could lead to an asset bubble, although he said this was not a concern for now.
Another key challenge was the need to reduce reliance on consumption and deepen capital formation, the opposite of the needed economic restructuring in China, Roubini said.
After 2016, what?
He also acknowledged the need to increase the government’s tax take, improve the modest flow of foreign direct investment, improve per capita income, address pervasive rural poverty and be better prepared for natural disasters.
Further institution-building is also deemed necessary. “The fight against corruption has been successful but much more needs to be done,” Roubini said, citing “oligopoly” in some sectors.
Greater openness to foreign investment, he said, was one structural reform critical to preventing the concentration of economic power.
“Question is what will happen after 2016. People are going to be asking, ‘Is it just that?” Roubini said.
But the economist said there was a good chance that in 2016, Filipinos would vote for leaders who have the same reform agenda as that of the current administration given the gains being reaped currently.
Nonetheless, he said the country must assure potential investors of the sustainability of the ongoing reforms.
Roubini said the Philippines would have to invest more in infrastructure and human capital to attract more investments. He said public spending on healthcare and education should increase to enhance human capital.
But he said that the challenges were already being addressed by the government, and this should eventually convince credit rating firms and the international investment community that the positive momentum would be sustained.