London-based think tank Capital Economics warned increased political uncertainty in the Philippines could dent economic growth over the next five years.
Capital Economics said the average gross domestic product growth over the next five years could settle near 6 percent, instead of 6.5 percent to 7 percent as predicted by the International Monetary Fund.
“There are already signs investors are starting to think twice before committing to long-term investments in the country. Having grown rapidly between 2010 and 2016, foreign direct investments was 15 percent lower [in] the first six months of 2017 than over the same period a year previously,” it said in its latest report.
“The upshot is that despite the government’s ambitious infrastructure plans, increased political uncertainty is likely to drag heavily on investment. The worsening outlook for investment is one of the key reasons why we think the Philippines will slightly disappoint expectations over the coming years,” it said.
“Whereas both the consensus and the IMF are expecting growth over the next five years of around 6.5 [percent] to 7 percent, we think growth is likely to be closer to 6 percent,” it said.
Capital Economics said the political stability under the previous Aquino administration was a key factor behind the surge in investment growth in the past few years.
Military coup attempts and corruption scandals, which were a common feature of political life in the country for much of the post-war period, were notably absent during the Aquino presidency, the think tank said.
Capital Economics said although government investment should continue to grow at a rapid pace, the outlook for private investment was less promising. It said if companies were to invest, they needed a stable and predictable business environment.
It said that while President Rodrigo Duterte had not been the disaster for the economy that some feared, there were signs the new president’s war on drugs, his erratic policymaking style and the worsening security situation in the south of the country was starting to weigh on investment prospects.
Capital Economics said after having climbed up the business rankings under President
Benigno Aquino III, improvements to the business environment appeared to have ground to a halt.
“If the Philippines is to maintain rapid growth, it requires more capital deepening. It is no surprise that the fastest-growing emerging markets over the past couple of decades have typically been those with
high investment rates,” it said.
Capital Economics said economic growth across large parts of the region had slowed since the global financial crisis but one exception to this was the Philippines, which transformed itself from being
“the sick man of Asia” into one of the region’s fastest-growing economies.
It said one driver of this turnaround was a rapid acceleration in investment growth. Since 2010, investment growth in the Philippines averaged above 10 percent, representing a marked improvement in previous decades.
Capital Economics said one plus side in the Duterte administration’s was the government’s plan to ramp up infrastructure investment.
The latest budget projects that government spending on infrastructure investment will rise to 6 percent of GDP by 2020, from 4 percent in 2016.
The World Bank estimated that developing countries such as the Philippines needed to spend the equivalent of 5.5 percent of their GDP a year to ensure that inadequate infrastructure would not become a major drag on development.
Finance Secretary Carlos Dominguez III earlier downplayed what he called “unfounded concerns” by some quarters over the supposed drastic drop in the flow of foreign direct investments as he cited the recent “healthy” $2.3-billion capital infusion by two global firms in the manufacturing and energy sectors.
Dominguez said those pointing to the alleged drop in FDIs failed to present the complete picture, omitting reinvestments that should have been included in assessing FDI data.