ADB raises 2013 PH growth forecast to 6%

The Asian Development Bank has raised its growth forecast for the Philippines for this year to 6 percent from 5 percent in the belief that its first-ever investment grade could prompt more investors to consider the country as a top business destination.

For 2014, the ADB said the country was expected to remain strong and grow 5.9 percent.

However, the ADB stressed the need for the Philippines to work doubly hard in resolving constraints to the entry of more foreign direct investments (FDIs). It warned that without sufficient absorptive capacity, the country could face threats of asset price bubbles resulting from the influx of foreign funds.

Norio Usui, chief economist of the ADB for the Philippines, explained that foreign-exchange inflows to the Philippines would be used mostly for purchasing portfolio instruments and real properties if existing bottlenecks to the establishment of enterprises would remain.

“The Philippines is presented with golden opportunities of higher investments, especially with the investment grade. The outlook for the economy over the medium term is quite optimistic,” Usui said Tuesday in a press conference on the release of the “2013 Asian Development Outlook” report.

“But if there is lack of investment opportunities in the country, money could go to the financial markets and real estate, posing threats of a bubble in [these] markets,” Usiui added.

Some of the key constraints cited by the ADB for hindering the establishment of job-generating businesses were the tedious process of getting licenses and setting up enterprises in the country, lack of technical skilled workers and inadequate infrastructure.

Neeraj Jain, country director of the ADB for the Philippines, said the country needed to fully develop its manufacturing sector so that foreign-exchange inflows to the country could be used to establish businesses that have big labor requirements.

The ADB suggested that the government increase its investments in technical-skills education and focus on specific products where the Philippines have a comparative advantage.

“A stronger industrial base is vital for increasing jobs and will help make growth more inclusive and sustainable,” Jain said, adding that the government needed to invest more in infrastructure, inadequacy of which has often been cited as a major hindrance to FDIs.

Jain said government spending for infrastructure should increase to an amount equivalent to 6 to 7 percent of the country’s gross domestic product. Current public infrastructure spending is below 3 percent of GDP.