Reforms that will strengthen investments are needed to sustain the economy amid local and global headwinds, the World Bank said on Tuesday as it maintained its growth forecasts for the Philippines.
"Persistently high inflation amid volatility in global commodity prices, the high cost of borrowing for businesses and households, and geopolitical uncertainty have affected private investments," World Bank Country Director Ndiame Diop said in a briefing.
"Full implementation of key recent reforms is important to mitigate these challenges, stimulate private investment and promote job creation, and poverty reduction," he added.
The multilateral organization still expects Philippine gross domestic product (GDP) growth to settle at 5.6 percent this year, below the government's 6.0- to 7.0-percent target, despite better-than-expected third quarter growth of 5.9 percent.
"Despite the challenging global environment that resulted in a slowdown for many countries in the region, the Philippines stands out as among the top performers," Diop noted.
"This achievement can be attributed to the country's resilience, resilient domestic demand, which helps mitigate the impact of external headwinds," he added.
Year-to-date growth remains below target at 5.5 percent and analysts have said that the full-year goal appears to be out of reach. The economy will have to grow by 7.4 percent in the last three months of 2023 for a 6.0-percent average.
For next year and 2025, the World Bank expects GDP growth to average 5.8 percent, also below the government's 2024-2028 goal of 6.5 to 8.0 percent.
Services, fueled by the recovering tourism sector and the steady performance of the outsourcing industry, would be the main driver of Philippine growth. This is expected to lead to job creation, higher incomes and positive effects on consumption and tourism-related sectors.
Additionally, a slight rise in global trade and increased growth in the East Asia and Pacific region are anticipated to boost trade and manufacturing growth from 2024 to 2025.
"Private consumption is expected to remain the main growth engine, supported by a robust labor market, steady remittance growth and lower inflation," the World Bank said.
While investment growth will likely slow this year, a 2024-2025 recovery is expected, partly due to recent investment reforms and a commitment to public investment despite ongoing fiscal consolidation efforts.
Downside risks to the growth outlook, the World Bank said, include the "threat of higher-than-expected global inflation, escalating geopolitical tensions and tighter global financing conditions could dampen global activity and increase risks of financial stress."
While inflation is expected to slow, potential risks such as global commodity price volatility due to geopolitical tensions and trade restrictions could reignite it.
The World Bank also highlighted the threat of climate shocks, including those from the ongoing El Niño weather pattern, to domestic food supply as well as the risk of currency depreciation.
Ralph Van Doorn, World Bank senior economist, said the Philippines should continue pursuing a dual approach of monetary and nonmonetary policies to control inflation.
Sustaining targeted social programs, and improving forecasting and planning to stabilize food prices, reduce market volatility and ensure a reliable food supply will be crucial for short-term inflation reduction, he added.
"In the long term, more effective public spending in agriculture could boost productivity and improve local food supply, thereby reducing the impact of food price shocks that disproportionately affect the poor," Van Doorn continued.
"The flagship 4Ps cash transfer program, the digital food stamp program to 'food poor' families, cash subsidies to farmers and fuel subsidies to public utility vehicle operators remain important tools to protect the incomes of poor and vulnerable Filipinos."
The World Bank emphasized the importance of a commitment to fiscal consolidation and said that lower deficits and higher revenues would in turn bolster the business environment.
Structural challenges in key sectors also have to be addressed to further enhance the country's long-term growth potential.
"Effective implementation of pro-investment reforms in renewable energy and sectors like trade, transport and telecommunications would generate economy-wide productivity gains," the World Bank said.
"Undertaking reforms to increase access and enhance the resilience of water supply and sanitation, education and health care systems can enhance potential growth in the face of climate change impacts, public health crises or natural disasters," it added.
Source: Manila Times