Asean think tank sees 6.5 percent PH growth in 2022, 2023
MANILA, Philippines—The regional surveillance organization Asean+3 Macroeconomic Research Office (Amro) has upgraded its 2022 growth forecast for the Philippines to 6.5 percent from 6.2 percent previously, but urged the government to sustain support to sectors scarred by the prolonged COVID-19 pandemic.
“Economic recovery in the Philippines is firmly on track—despite the recurrent waves of COVID-19 infections in 2021—and is expected to speed up following further relaxation of mobility restrictions and continued policy support,” Amro said in a statement on Friday (March 11). Amro’s latest assessment was based on its annual consultation with Philippine economic officials held online last Feb. 18 to March 8.
Amro lead economist Siu Fung Yiu projected Philippine gross domestic product (GDP) growth to hit 6.5 percent both in 2022 and 2023. Amro’s growth forecast for this year was below the government’s 7 to 9 percent target. Its estimate for next year, meanwhile, was within the Philippines’ 6 to 7 percent growth goal.
“Continued fiscal support and a high vaccination rate will help keep the economy relatively open and sustain the recovery momentum,” Yiu said.
“For 2022, public expenditure will continue to be the main driver of growth, with private sector recovery gaining momentum with the reopening of the economy, supported by better economic prospects, improving confidence, and favorable external demand,” Amro said.
Amro nonetheless urged the Philippines to put in place a fiscal consolidation plan that “should enhance fiscal sustainability without jeopardizing economic recovery.”
The fiscal consolidation strategy to be pitched and turned over by the Duterte administration’s economic team to the next Philippine president was aimed at narrowing the record-high budget deficit and repaying debt that piled up amid the pandemic.
The fiscal consolidation plan may include new or higher taxes, spending cuts on non-priority sectors, as well as economic growth drivers to enlarge revenue collections.
“A gradual reduction of the fiscal deficit is deemed appropriate as the recovery is still gaining traction in the near term,” Amro said.
“However, the pace of fiscal consolidation should be expedited once the private sector growth has become self-sustaining. The authorities should also continue to improve the efficiency of public spending programs, while enhancing revenue collection,” it said.
“The overall fiscal policy stance is assessed to be broadly neutral in 2022 under the current national budget. This policy stance is appropriate as the private sector recovery is expected to become more self-sustaining going forward,” it added.
But Amro noted that the Philippines’ recovery remained fragile — “while the labor market has rebounded strongly, unemployment remains high, and the quality of employment has deteriorated,” it pointed out.
“Some lasting damages caused by the pandemic have become clearer, the most adverse of which is on human capital, raising the urgency to take action to build resilient, sustainable, and inclusive long-term growth,” Amro said.
Skyrocketing global oil prices due to the Ukraine-Russia war will also pose upside inflation risks this year, Amro said, even as it projected the rate of increase in prices of basic commodities to ease to 3.7 percent and 3.3 percent next year from 3.9 percent last year.
Also, Amro said “a potential resurgence of COVID-19 infections remains a key risk to the recovery and the impairment of firms’ balance sheets continue to pose a risk to the banking sector’s soundness in the short term” even as “the significance of these two risks may have abated due to higher vaccination rate and recovering economic activity.”
As global interest rates normalize and financial conditions tighten, Amro said that “the Philippine economy is well-positioned to weather the adverse impact, but the peso exchange rate may come under some pressure.”
“The Philippine central bank should continue its accommodative monetary policy in 2022 to support the recovery, and consider tapering its policy stance as the recovery gains traction and the output gap is narrowed,” Amro said.
“The central bank’s key relief measures are still in place to ensure continued support toward recovery of businesses, households, and the economy as a whole,” Amro added, referring to the Bangko Sentral ng Pilipinas (BSP).
“The government needs to leverage both public and private efforts to mitigate the scarring effects from the pandemic and resolve structural challenges for a more resilient and sustainable long-term growth,” according to Amro.
“The country’s legislative efforts, including the passage of amendments to the Retail Trade Liberalization Act, the Public Service Act, and the Foreign Investments Act are welcome,” Amro said.
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