BSP: PH likely to avoid ‘middle-income trap’

The Bangko Sentral ng Pilipinas believes the country has what it takes to avoid falling into the “middle-income trap,” saying that favorable monetary conditions support the rise in investments that is required to sustain a robust economic growth.

This was in reaction to the concern aired by the International Monetary Fund earlier about the possibility of the Philippines and other developing countries in Asia falling into the middle-income trap, which means robust growth rates now enjoyed by middle-income countries would eventually slow down, preventing them from reaching the income status of advanced economies.

BSP Governor Amando Tetangco Jr. said low interest rates and the significant liquidity in the banking system provided the appropriate environment for businesses to borrow funds, invest more and sustain the economy’s high growth rate over the medium to long term.

The private sector only has to take advantage of the favorable macroeconomic environment and bet more on the Philippines to support the continued growth of the economy, he added.

“To avoid the middle-income trap, one must increase investments and expand the economy’s absorptive capacity. Now is a very good time to do that given the low interest rates and sufficient liquidity that can be tapped for investment activities,” Tetangco said.

“Government spending has gone up over the last three years, and it has significantly contributed to the country’s growth. The private sector should now invest more and serve as the main growth driver of the economy,” he added.

The BSP’s key policy rates remain at record lows of 3.5 and 5.5 percent for overnight borrowing and lending, respectively.

The banking sector’s total resources, which determine its ability to extend loans, grew year on year by nearly 11 percent to P8.25 trillion in January.