Gov’t eyeing higher investment-to-GDP ratio

To make the Philippines more supply-driven and minimize consumption’s role on the economy’s growth, the government now wants the rise of investments to be in step with that of the country’s gross domestic product (GDP).

In particular, the Aquino administration wants the ratio of the country’s investments to that of GDP to hit at least 22 percent by 2016 from the current estimate of 20 percent.

The ratio stood at 19.7 percent last year.

According to a report, complementary projects and programs under the administration’s medium-term development agenda, will enable the government to attain its target of raising the investments-to-GDP ratio. These initiatives include higher spending on infrastructure, higher budget for education and skills training, improving accessibility of credit, and easing the process of putting up businesses.

The government is working to generate more investments from local and foreign investors and channel the funds to the local manufacturing, business process outsourcing, information technology, agriculture, tourism and construction sectors.

For years, the Philippine economy has been driven largely by consumption. The government now wants to change all that by setting a goal of attaining a higher investments-to-GDP ratio, a closely monitored indicator of an economy’s ability to sustain growth.

Household spending, partly aided by remittances from over 10 million Filipinos working overseas, was the key factor that enabled the Philippines to escape a recession in 2009, just when the global economy was suffering from severe financial problems.

Despite the positive contributions of consumption, economic officials said it would be vital for the economy to increase the share of investments to that of GDP. This is because investments tend to cause a multiplier effect which, in turn, can lead to job creation.

The aim for a higher investment-to-GDP ratio likewise comes as the Philippines continues to trail behind its neighbors in terms of investments. In fact, even the targeted 22-percent investment-to-GDP ratio will still be negligible compared with those of neighboring countries.

The ratio for Thailand and Indonesia, for instance, are estimated at above 25 and 30 percent, respectively.

But economic officials said a spike in the investment-to-GDP ratio will not happen overnight.

Instead, they said, it may take several years of strong macroeconomic fundamentals, governance reforms, and higher public spending on infrastructure and other development initiatives to reach this goal.

But they also said a decent pace of increase in the investment-to-GDP ratio will go a long way in terms of boosting job creation and reducing poverty incidence.

Lack of investments has been blamed for the still relatively high poverty incidence and unemployment rate in the country, despite the economy’s healthy pace of growth.

As of the first semester of 2012, the poverty rate stood at 27.9 percent, reflecting an insignificant improvement from the 28.6 percent reported in 2009.

The unemployment rate rose to 7.3 percent in July this year from 7 percent in the same period last year.