Slower global growth and the next administration’s uncertain commitment on policy reforms and good governance pose major risks to the Philippine economy this year, an official of government think tank Philippine Institute of Development Studies said in a report Tuesday.
PIDS president Gilbert Llanto said the Philippine economy could face rough sailing this year because of threats from both external and domestic fronts.
“As the Philippine economy integrates more closely with the global and regional economy, external events will have a bigger impact on domestic growth prospects. Weak external demand will have negative impacts on the growth of trade and services,” Llanto said.
He said the Philippines had a trade deficit equivalent to $3.8 billion in October and China’s slowing growth and recession in Japan did not bode well for the economy.
Llanto said weaknesses among Asean’s major trading partners would have negative spillover effects on other member states like the Philippines.
“Because of this, there is a great risk that trade-led growth may not be a viable option for the Philippines in the immediate future. The Philippines still suffers critical development constraints: infrastructure is inadequate and there are problems with connectivity,” he said.
Llanto also said the issue of succession after the May presidential elections provoked several questions, such as if the next leader would be as committed to policy reform and improved governance.
“Will there be policy reversals because of tremendous pressure from opportunistic politics? Will the next leadership be able to put together an able and responsible team who will stay the course and tackle the more difficult reforms in policies and institutions?” Llanto asked.
“There will not be a lack of contenders in the political market who might put political expediency over difficult reform. This poses a danger to the economy because Philippine politics is already personalist and opportunistic. Many voters don’t vote on issues but are mesmerized by personal charisma and [empty] promises made by political entrepreneurs,” Llanto said.
He said the challenge to the electorate was to select a leader who would not flinch at the sight of difficult reforms. On the contrary, he said, they should have the courage to make bold policy decisions and inspire the government machinery to implement them.
“The electorate needs to be better informed and educated. The Philippines’ recent growth experience was made possible by reforms in governance and policy,” Llanto said.
Policy reform efforts led to sound macroeconomic foundations and an improved governance framework. Both these factors encouraged investment and business activity as well as a consistent build-up of foreign exchange reserves, he said.
Foreign exchange reserves stood at $80.6 billion as of end-November, or enough to cover over 10 months of imports and payments of services and income. International credit rating agencies also upgraded the Philippines’ credit rating, also because of policy reforms.
Llanto said the Philippines sustained consumption growth due to substantial remittances from overseas Filipino workers and low inflation.
The services sector, mainly the IT business process outsourcing industry, has significantly contributed to output and employment.
“The government has successfully worked for the recent passage of critical reform laws: competition policy, liberalizing the banking system, as well as managing and improving transparency of tax incentives. It has strengthened universal health insurance and sustained its conditional cash transfer program which covers millions of poor families and has been designed to improve the education and health status of the poor,” he said.
Llanto said the current leadership must fully utilize its remaining political capital to pursue difficult reforms covering trade facilitation and regulatory frameworks. He said it should continue to invest in both human and physical capital that would raise productivity in the future.