PH seen outperforming emerging markets

The Philippines could outperform other emerging markets despite external shocks that may affect the domestic economy, according to Washington-based Institute of International Finance (IIF).

But the institute lamented in its report last month, titled “IIF Dispatch: Philippines Update,” that persistent government underspending, coupled with the slow rollout of the Aquino administration’s centerpiece public-private partnership (PPP) program, had been dragging economic growth.

“The Philippines is well-placed to outperform its emerging markets peers if EM [emerging markets] stress picks up in the context of Fed liftoff, thanks to a solid current account surplus, very low fiscal deficit and little foreign participation in local markets,” IIF said.

It cited that in the Philippines, only 6 percent of the debt are foreign-owned, just “a fraction” of those in neighboring Indonesia and Malaysia.

“We see little risk of massive turbulence in the local rates markets,” it added.

IIF nonetheless pointed out that the Philippine economy “is not insulated from the negative impact of a slowing China and lackluster global growth.”

“Growth has been lower than projected (5.2 percent in the first quarter of 2015) and disinflation has taken hold. The current account should remain strong despite weak exports as imports are down too. Also, workers’ remittances particularly from the Gulf region are now moderating to single digits after years of double digit growth, reflecting weaker oil prices,” IIF noted.

Adding to the country’s troubles was slow public spending on goods and services needed to support the growing economy, it said.

“Government underspending is still a major issue with no quick fix available. The fact that there is no consensus on why spending continues to surprise on the downside as the money gets stuck in agencies’ accounts tells you that there is no easy solution,” IIF said.

Government data released last Monday showed that while expenditures grew by 6 percent to P835.7 billion during the first five months, disbursements were outpaced by the robust increase in revenues, resulting in a wider budget surplus of P86.4 billion at end-May.

Underspending was mostly blamed for the dismal 5.2-percent economic growth during the first quarter—the lowest rate since 2012.

It did not help that the PPP initiative has been “disappointing so far,” according to IIF.

“It took years for the Aquino administration to get the PPP framework up and running and it is still unclear to us if PPP will really take off in the second half of the year,” IIF said.