Duterte economic policy direction ‘uncertain’

While the World Bank has lauded President Duterte’s 10-point socioeconomic agenda, the multilateral lender said it was concerned about “uncertainty” in the direction of economic policies moving forward.

In the October 2016 Philippine Economic Update report released Friday, the World Bank took note of the Duterte administration’s priority agenda aimed at slashing the poverty incidence rate to 17 percent by 2022 from 26 percent at present.

“The previous administration made major achievements in securing macroeconomic stability, promoting public sector transparency and focusing fiscal resources on pro-poor infrastructure projects and social services, and the new President’s economic team has prepared a 10-point socioeconomic agenda designed to reinforce private sector confidence in the continuity of the existing macroeconomic framework. The preliminary agenda is intended to bolster the government’s current fiscal, monetary and trade policy stances, while prioritizing tax administration reforms,” the World Bank noted.

However, “despite these reassurances, a degree of uncertainty remains regarding the ultimate direction of macroeconomic policy,” the World Bank said.

“The short-term challenge is how to successfully manage the economic transition and providing the right signals to investors and businesses. Over the longer term, policymakers will need to explore innovative strategies for sustaining high growth rates as the returns to the country’s current economic model inevitably diminish,” according to the World Bank.

Specifically, the Washington, D.C.-based lender said “the new administration will need to take swift and decisive action to confirm its commitment to its stated priorities and dispel any lingering policy uncertainty.”

“The new government has taken steps to reassure businesses and investors that the continuity of existing macroeconomic policies will be maintained, including growth-supporting fiscal, monetary and trade policies. Major structural reform initiatives are planned in the areas of tax policy and administration, expenditure tracking, land-tenure security and constitutional restrictions on foreign asset ownership. Nevertheless, as the details of these policies and their implementation strategies are still under discussion, businesses are likely to maintain a cautious approach toward investment and expansion,” the World Bank said.

For the World Bank, “if the authorities are able to foster a climate of strong policy credibility over the next six to 12 months, the country’s economic prospects could further improve.”

In the October report, the World Bank kept its 2016 growth projection for the Philippines at 6.4 percent, the same as its forecast in April. The government targets a growth of 6 to 7 percent this year.

“The current forecast assumes that capacity limitations may slow the implementation of large-scale public infrastructure projects and that it could take longer to overcome these obstacles. Meanwhile, lingering uncertainty regarding the new administration’s reform agenda will lead to caution among investors and consumers,” the World Bank said.

“However, if the government is able to successfully address these challenges, growth could exceed the rate of 6.2 percent projected for 2017-2018. These challenges notwithstanding, the Philippine economy continues to benefit from strong macroeconomic fundamentals and is projected to remain among East Asia’s top growth performers over the short-to-medium term,” it added.