Economy won’t lose luster amid uncertainties

THE PHILIPPINE economy is seen to withstand external volatility and domestic risks brought about by uncertainties from next year’s elections, the Washington-based Institute of International Finance (IIF) said.

In a July report entitled “Philippines: Resilient Despite Risks,” the IIF said it expected the country to post “slightly stronger growth in the second half [of 2015] despite global uncertainties.”

“The Philippines has experienced impressive economic growth over the last couple of years, but output slowed recently with disappointing trade and public consumption. Government spending should however pick up in the second half which should help GDP (gross domestic product) rebound along with strong private consumption and investment,” IIF Asia-Pacific director JC Sambor and associate economist Kevin Sanker said in the report, a copy of which was provided to the Inquirer.

The IIF noted the Philippines “is likely to be more resilient than its Asian peers given its conservative fiscal policy, robust balance of payments and relatively small exposure to global capital flows.”

“The Philippines should be less affected than other Asian economies by a tightening in emerging market financing conditions due to its high current account surplus and relatively insulated capital account. The local bond market should be less volatile than its Asian peers and the Philippine peso should be more resilient than other Asian currencies,” it said.

The IIF also sees Philippine monetary policy remaining on hold after last year’s shift to a “tighter stance,” noting “low inflation may rise in the second half and liquidity remains ample.”

“Should inflation come in lower than expected and growth disappoints, some easing cannot be ruled out,” it added.

The IIF, however, warned of challenges ahead for the government’s plan to ramp up spending and public investment amid “structural” constraints.

“Public consumption and investment have been mainly hindered by underspending at the agency level, where bottlenecks in the procurement process and capacity constraints have prevented funds disbursed by the national government from being put to use,” it said.

It took note of the Supreme Court’s ruling last year finding unconstitutional several provisions of the Disbursement Acceleration, the government’s banner stimulus program. It said the decision created some apprehensions “among officials as graft suspicions are often associated with increased expenditures.”

While the national government is now trying to address weak spending, the IIF said measures would not immediately be felt. It said public spending would only “have a gradual impact on GDP growth in the second half of the year.”

“Weak infrastructure remains a major headwind for the economy and also deters foreign direct investment (FDI), along with costly power and foreign ownership restrictions. This helps explain the low level of FDI compared to peers in the region,” the IIF said.

With regard to the Aquino administration’s centerpiece public-private partnership (PPP) program, the report lamented “project implementation has been relatively slow so far … hindered by limited agency capacity and the complex nature of the large projects.”

Domestic firms are snatching up the projects, but the most needed international participation is absent, it added.

The upcoming national elections itself is seen as both a boost as well as a risk to sustaining the economic growth achieved thus far under the Aquino administration.

“The likely short-term economic boost through government spending and investment ahead of the election should favor [presidential aspirants, Interior Secretary Mar] Roxas or [Sen. Grace] Poe, but maintaining policy continuity will be a challenge,” IIF said.