World Bank, Moody’s see PH growth at below-target 5.8% in 2019

MANILA, Philippines — Economic expansion likely fell below 6 percent last year no thanks to underspending due to delayed budget approval, but growth will bounce back this year with the spending plan already in place, the multilateral lender World Bank and debt watcher Moody’s Investors Service said in separate reports Thursday.

In its January 2020 Global Economic Prospects Report, World Bank said it expects the Philippines’ gross domestic product (GDP) to have had grown by 5.8 percent last year, underneath the government’s downscaled 6-6.5 percent target.

The government will report on the fourth-quarter and full-year 2019 GDP performance on Jan. 23.

Last year, “some commodity importers operating at or above capacity have experienced a cyclical moderation of activity, such as Cambodia, the Philippines, and Thailand,” World Bank said.

“Weak export growth has added to the slowdown, especially in the economies that are deeply integrated into global and regional production networks, including Thailand and the Philippines” in 2019, World Bank added.

Separately, Moody’s said in its report titled “Passage of Philippine budget supports robust GDP growth” that economic growth last year likely settled also at 5.8 percent.

As the P3.7-trillion 2019 national budget was signed only in April and the government had operated using reenacted 2018 appropriations, Moody’s said “national government spending excluding interest payments contracted 1.9 percent in the first half of 2019 compared with the year-earlier period and weighed on economic growth.”

“The large 27.2-percent contraction in real public construction in second quarter 2019 cut more than one percentage point from real GDP growth and was the largest contributor to the weakest growth since early 2015,” Moody’s added.

While Moody’s noted that expenditures net of interest payments caught up and increased 16.8 percent between July and November last year, it pointed out that “total spending through the first 11 months rose by only 6.7 percent, or about 90 percent of the year’s budget allocation and down from the 20.7-percent increase for all of 2018.”

For 2020, Moody’s said it would help that the government extended until yearend the validity of unused 2019 funds.

“We expect the pace of government spending to normalize and, along with residual spending from the 2019 budget, support a significantly larger fiscal expansion in 2020. We project the Philippines’ real GDP growth will accelerate to 6.2 percent this year, faster than most regional and rating peers and bucking the trend of lackluster global economic growth,” Moody’s said.

Moody’s 2020 GDP growth forecast for the Philippines was nonetheless below the government’s yearly 6.5-7.5 percent target range starting this year until 2022.

“Despite our expectation of a significant pickup in budgeted spending and a consequently wider fiscal deficit, we project underlying strengthening in Philippine fiscal metrics because of ongoing structural increases in revenue from tax reform. In 2020, revenue will be enhanced by scheduled increases in excise taxes effective at the beginning of this year, some of which were part of the Duterte administration’s first package of tax reforms passed in 2017. In addition, a 2018 law raised duties on tobacco products. We expect national government debt to remain stable and debt affordability to improve,” Moody’s added.

For its part, World Bank projected the Philippine economy to grow 6.1 percent in 2020, and 6.2 percent both in 2021 and 2022.

This year, “domestic demand benefits from generally supportive financial conditions amid low inflation and robust capital flows in some countries, including Cambodia, the Philippines, Thailand, and Vietnam, and as large public infrastructure projects come onstream in the Philippines and Thailand,” World Bank said.