By Elijah Joseph C. Tubayan, September 25 2018; Business World
Image Credit to The Guardian Nigeria
THE PHILIPPINE economy needs to grow at least 6.5% annually if it is to turn “into a prosperous middle-class society free of poverty by 2040,” the World Bank said on Monday, describing this goal as challenging but attainable.
“To achieve the national Ambisyon, the Philippines needs to triple GDP (gross domestic product) per capita in the next two decades. The Philippines has done it before but there are challenges,” said World Bank senior economist Rong Qian during a media briefing in Manila as she presented its report, titled Growth and Productivity in the Philippines: Winning the Future.
“High growth is not enough. More could be done to make it more inclusive.”
She said the country’s per capita income of around $3,000 needs to grow to $9,000 to minimize poverty, as envisioned in the government’ long-term plan Ambisyon 2040.
The report found that the Philippines’ ability to sustain high growth rates will depend on how it can accelerate infrastructure investments, as well as efficiently tap capital, labor and technology to boost productivity.
“The Philippines has been investing little in physical capital compared to regional peers over the last two decades, so there’s an opportunity to accelerate growth by investing in infrastructure,” she said.
“Second, the Philippines needs to sustain high growth productivity, or how the economy efficiently uses its resources to produce goods and services.”
She also cited constraints such as the unfair playing field in the telecommunications industry that has made mobile and Internet services slower and more expensive than those of regional peers.
“Sadly, competition in the Philippines is not as strong compared to other countries as many sectors are dominated by only a few firms. A clear example is the current telecom industry which has only two players that don’t really compete,” she said, citing restrictions in the Constitution on foreign participation in several economic sectors.
She added that the country should also address non-tariff measures to attract foreign investments such as reducing logistics cost by building more physical infrastructure.
She added that despite foreign investments growing constantly in recent years, the value was still low compared to those going to other countries in Southeast Asia.
“Trade opens up a country to foreign competition, but Philippines is not trading enough. This is despite having low tariff rates,” she said.
The World Bank said that the Philippines has been growing at an annual average of over six percent since 2010, faster than the 5.3% average in the preceding 10 years. It added that income per capita doubled between 2000 and 2017.
World Bank said in a statement that the country “is clearly in a better position now to speed up reforms to achieve its development goals.”
It said that the Philippines labor market has also remained “rigid” due to cumbersome regulations on processes to hire and fire a worker.
The World Bank recommended to: “increase competition in the telecommunications, electricity, and transport sectors; streamline burdensome procedures to start new businesses and pay taxes; reduce restrictions on foreign investors; reduce trade costs by improving port and logistics infrastructure; pursue more balanced regulations between employees and employers by lowering costs and simplifying procedures for hiring and firing workers; make regular employment contracts more flexible.”
Moving forward, the World Bank economist said that sustaining the 6.5% is “challenging,” but noted that the “Philippines has shown that it can implement difficult reforms to accelerate and sustain that high level.”
Moreover, she said that the current per capita income is already close to the $4,000 threshold of an upper-middle income country.
Socioeconomic Planning Secretary Ernesto M. Pernia has said that the government may reach that status in 2019, earlier than the 2022 target.
“Depending on how we will perform this year, it’s achievable next year,” the World Bank official said.
The economy grew 6.3% last semester, against 6.6% in 2017’s first half.
The World Bank estimates that the Philippines’ GDP would grow 6.7% this year until 2019, and 6.6% in 2020, below the government’s official target of 7-8%.
“The current government public investment program, the ‘Build, Build, Build’ — that is on track to close the physical capital investment gap,” the World Bank economist added..
The government aims to cut poverty incidence to 14% in 2022 from 21.6% in 2015, with infrastructure spending at the forefront of its development thrust targeted to be equivalent to 7.3% of GDP by 2022 from the 5.6% recorded last year. — Elijah Joseph C. Tubayan