Philippine Growth Hinges on Continued Policy and Governance Reforms, Says ADB

The Philippine economy is set to post solid economic growth over the next two years as the government presses ahead with promised policy and governance reforms and with public-private partnership projects, the Asian Development Bank (ADB) says in a major new report.


ADB says the economy is likely to expand 5.0% in 2011, quickening to 5.3% in 2012. Growth will continue to be driven by investment and consumption.


2011 growth rates come on the back of strong economic recovery in 2010, when an upsurge in investment combined with buoyant private consumption to lift economic growth to 7.3%. The recovery in exports underpinned the robust investment last year, with consumer price inflation subdued at 3.8%.


The economic outlook for the next two years remains relatively upbeat even as ADO 2011 assumes that monetary policy will be gradually normalized, and that fiscal conditions will be less accommodating amid government commitments to trim the budget deficit. Strong business sentiment in the wake of successful political transition in 2010, upgrades by credit rating agencies, and a high level of capacity utilization in the manufacturing sector point to robust momentum in private investment. Private consumption is expected to remain strong. Together with rising fuel prices, robust recovery in aggregate demand will exert upward pressure on inflation, which is forecast to rise to 4.9% in 2011, before easing to 4.3% in 2012.


"Our outlook for the Philippines hinges on the government following through on its plans to reduce the fiscal deficit, and improve governance and the business environment. Jump-starting the planned public-private partnerships will give investment a strong boost," says Neeraj Jain, Country Director of ADB's Philippines Country Office.


Downside risks to forecasts are that global growth will be weaker than expected, remittance inflows will be disrupted, and oil and food price rises will exceed projections. A lack of progress in the public-private partnership program or in plans to improve governance and public finances could undermine business confidence.


The ADB report also notes the ongoing problem of generating jobs, with the unemployment rate dipping only slightly last year to 7.3% and underemployment remaining high at around 20%, forcing many Filipinos to seek work overseas. The lack of jobs has undermined efforts to reduce poverty, with the number of poor actually rising by over three million in the six years to 2009.


"Progress has been slower than hoped for on the Millennium Development Goals relating to poverty, maternal health and primary education," said Changyong Rhee, ADB's Chief Economist.





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