Underspending threat to growth

Economic growth in the Philippines will remain strong this year, but the government has to ramp up spending efforts in the coming months or concede that official targets will be missed.

Rating firms on Friday said the Philippines’ gross domestic product (GDP) would still expand above historical averages on the back of consumer spending and strong private investment.

The state’s failure to meet spending commitments, however, would prove to be a main stumbling block.

“The government’s ambitious growth target may be difficult to achieve in the absence of more effective budget execution,” Moody’s Investor Service said in a report on the Philippines.

Moody’s slashed its growth projection for the Philippines by half a percentage point to 6 percent for this year due to the slower-than-expected expansion recorded in the first quarter. Standard & Poor’s, meanwhile, said it expected the Philippines to grow by 6.2 percent.

In January to March, Philippine GDP grew by 5.2 percent, the slowest rate since 2012. This was far short of the government’s growth target of at least 7 percent.

At the end of April, the state had a budget surplus of P19.1 billion, reversing a P3.3-billion deficit in end-April last year and indicating further spending bottlenecks.

There remains room for cheer over the Philippines’ economic prospects. Moody’s said the country has demonstrated resilience to global shocks, which limits the possibility that improvements in fiscal or economic performance would be significantly undermined.

As a net oil importer, the Philippines stands to benefit from lower oil prices, which has brought down inflation and reduced the economy’s import bill.

“In addition, as manufacturing goods, services and remittances comprise the vast majority of current account receipts, the country’s external balances will not be as adversely affected by the terms of trade shock affecting more commodity-reliant exporters,” Moody’s said.

The Philippines is also less reliant on a slowing China while its solid current account surplus provides a degree of resilience to shifts in global liquidity conditions in the context of the imminent normalization of US monetary policy.

“Regarding institutional strength, the Philippines has continued to improve its rankings on cross-country surveys, in line with the current administration’s emphasis on good governance,” Moody’s added.