OECD sees faster 2nd half PHL growth

Business World - - FRONT PAGE - By Eli­jah Joseph C. Tubayan Re­porter

PHILIP­PINE gross do­mes­tic prod­uct (GDP) growth should pick up slightly this se­mes­ter from the first half’s 6.45% av­er­age on the back of strong do­mes­tic con­sump­tion and im­proved state spend­ing, ac­cord­ing to a re­port of the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment (OECD) that sees the coun­try lead­ing ex­pan­sion among South­east Asia’s five big­ger economies up to 2022.

“Be­nign in­fla­tion, a sta­ble fi­nan­cial sec­tor, an ac­com­moda­tive mon­e­tary pol­icy, ro­bust re­mit­tance in­flows and a healthy fis­cal po­si­tion should con­tinue to fa­cil­i­tate do­mes­tic con­sump­tion growth at least un­til the end of the year,” read the Eco­nomic Out­look for South­east Asia, China and In­dia 2018 which OECD re­leased on the oc­ca­sion of the three-day ASEAN Business and In­vest­ment Sum­mit 2017 at So­laire Re­sort

& Casino in Parañaque City that ended yes­ter­day.

The re­port also cited “sus­tained resur­gence in con­sumer con­fi­dence,” a pickup in state spend­ing growth to a 7.1% yearon-year clip in the sec­ond quar­ter from the first three months’ 0.2% — though the year-to-date pace “is still sub­dued com­pared to last year” and mer­chan­dise ex­port re­cov­ery that off­set a de­cel­er­a­tion in man­u­fac­tur­ing vol­ume as sup­port­ive of 6.6% GDP ex­pan­sion for 2017, “with growth in 2017 H2 an­tic­i­pated to be slightly faster than in 2017 H1.”

A Busi­nessWorld poll of 11 econ­o­mists late last week yielded a 6.6% me­dian es­ti­mate that matched that of Moody’s An­a­lyt­ics for third-quar­ter GDP growth, which the Philip­pine Statis­tics Au­thor­ity is sched­uled to re­port this Thurs­day.

OECD’s pro­jected full- year pace for the Philip­pines, if re­al­ized, would be slower than the 6.9% ac­tu­ally clocked in 2016 and com­pares to the gov­ern­ment’s 6.5-7.5% tar­get for this year.

At 6.6%, the Philip­pines will be faster this year than its com­pa­ra­ble peers in the As­so­ci­a­tion of South­east Asian Na­tions (ASEAN): Viet­nam’s 6.3%, Malaysia’s 5.5%, In­done­sia’s 5.0% and Thai­land’s 3.8%.

It will also match In­dia’s pro­jected pace, will be slower than China’s 6.8% fore­cast, but will outdo the 4.8% av­er­age of all ASEAN mem­bers and the 6.4% av­er­age of “emerg­ing Asia”.

The Philip­pines’ pro­jected 6.4% av­er­age in 2018-2022 will sim­i­larly outdo fore­casts of the other four big­ger ASEAN economies and will be faster than its 5.9% 2011- 2015 av­er­age ( which matched that of Viet­nam and was the fastest clip among ASEAN 5).

“Con­sump­tion and fixed in­vest­ments, which grew 6.1% and 11.7% on av­er­age from 2011 to 2016, re­spec­tively, will con­tinue to fuel eco­nomic growth un­til 2022, mainly un­der­pinned by ro­bust re­mit­tance in­flow from over­seas work­ers, planned bigticket in­fra­struc­ture projects and the re­silience of off­shoring and out­sourc­ing in­dus­try,” the re­port read fur­ther.

OECD’s 2017 fore­cast for the Philip­pines matches those of the International Mon­e­tary Fund (IMF) and the World Bank, and com­pares to the Asian De­vel­op­ment Bank’s (ADB) 6.5% and the United Na­tions Eco­nomic and So­cial Com­mis­sion for Asia and the Pa­cific’s (ESCAP) 6.9%.

For next year — for which the gov­ern­ment tar­gets 7-8% — the IMF, World Bank and ADB see 6.7% growth, while ESCAP has pro­jected 7.0%.

The re­port cited “op­ti­miz­ing in­fra­struc­ture fi­nanc­ing” as the Philip­pines big­gest medi­umterm pol­icy chal­lenge.

“While im­prove­ments have been made in re­cent years, additional cap­i­tal and ef­fi­cient in­vest­ments will be needed to keep up with de­mand for in­fra­struc­ture de­vel­op­ment in the fast-grow­ing econ­omy,” OECD said.

Not­ing that the gov­ern­ment of Pres­i­dent Ro­drigo R. Duterte has cho­sen to rely pri­mar­ily on state bud­gets and of­fi­cial de­vel­op­ment as­sis­tance for con­struc­tion of in­fra­struc­ture, leav­ing op­er­a­tion and main­te­nance of fin­ished struc­tures to pub­lic-pri­vate part­ner­ships ( PPP), OECD’s re­port said “un­pre­dictable de­ci­sions — such as the re­moval from the PPP pipe­line of projects that had been there for a while — can also un­der­mine the gov­ern­ment’s cred­i­bil­ity in its ef­forts to get the pri­vate sec­tor more in­volved in in­fra­struc­ture de­vel­op­ment.”

“Bu­reau­cratic is­sues aside, this also stems from lim­ited num­ber of tech­ni­cally ca­pa­ble per­son­nel in some of the agen­cies in­volved,” the re­port said, adding that “[t]he im­per­fect in­tegrity of the way the coun­try’s in­sti­tu­tions op­er­ate un­der­scores these short­com­ings.”

In­stead, OECD said, “the PPP Cen­ter could be strength­ened in terms of its man­date and re­sources.”

It also noted that while the coun­try’s bond mar­ket “could pro­vide an al­ter­na­tive source of fi­nanc­ing” it still needs to be de­vel­oped fur­ther as “the ra­tio of the to­tal out­stand­ing value of lo­cal-cur­rency bonds to GDP re­mains rel­a­tively small.”

The gov­ern­ment is cur­rently push­ing for leg­isla­tive ap­proval of the first of up to five tax re­form pack­ages in time for im­ple­men­ta­tion in Jan­uary next year.

The Duterte ad­min­is­tra­tion is bank­ing on added rev­enues from those pack­ages — de­signed to shift the tax bur­den to those who can af­ford to pay more — to help fi­nance up to P8.44 tril­lion in tar­geted spend­ing on pub­lic in­fra­struc­ture projects un­til it steps down in 2022.

The first of those pack­ages, now await­ing Se­nate ap­proval af­ter it hur­dled the House of Rep­re­sen­ta­tives on May 31, con­sists of a re­duc­tion in per­sonal in­come tax rate, to be off­set by an in­crease in the ex­cise taxes for cars and fuel, an ex­cise tax on sugar-sweet­ened drinks, re­moval of some value added tax ex­emp­tions, as well as sim­pli­fi­ca­tion of ex­cise and donors tax sys­tems.

“Non-tra­di­tional tools, such as levies to cap­ture the ap­pre­ci­a­tion in land value re­sult­ing from in­fra­struc­ture de­vel­op­ment, could also be con­sid­ered to raise rev­enues,” OECD said in its re­port.

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