What WB looks at in assessing RP prospects


he reports on this country’s near-term economic prospects that are issued by international and foreign banks, perhaps the one that is most highly regarded is the assessment of the Philippine economy done periodically by the World Bank (WB) which is the development-oriented half of the International Monetary Fund-World Bank pair of Washington-based international financial institutions. The higher regard for WB reports countries can be attributed partly to the fact that the World Bank is an international institution and partly to the fact that, not being a commercial bank, its reports are less likely to be tainted by biases of one kind or another.

The key point about the latest (release date: October 4, 2017) WB report on the Philippines is that the Bank has lowered its forecast for the 2017 economic growth of the Philippine gross domestic product (GDP) growth by 0.2. percent—from 6.8 percent to 6.6 percent. The forecast forms part of the World Bank’s October economic update report for East Asia and the Pacific.

The World Bank is the latest to join the list of financial institutions that have seen fit to take a second, more measured look at their assessments of the Philippine economy’s near-term growth prospects. Some of the largest US and European commercial banks and securities firms are on that list.

What did the WB economists look at before deciding to lower their 2017 growth forecast for the Philippines? Apparently, four things mainly: the progress of the Duterte administration’s infrastructure program, the trend of interest rates in the advanced economies, the fiscal sustainabililty of the Duterte administration’s economic program and the trends of trade with the Philippines’ main trade partners.

The World Bank sees the Duterte administration’s “Build, Build, Build” program as the key to the level of growth that the Philippine economy will achieve in 2017, and it is concerned that the program’s implementation might experience delay.” The delay in the anticipated push of the planned (Philippine) government infrastructure program has been contributing to the moderation of fixed capital formation growth, softening the growth prospect for the year,” stated the WB report. “The pace of economic growth could be slower if the government is unable to timely deliver on its planned infrastructure program,” it said.

The World Bank expressed concern over the Duterte administration’s fiscal sustainability in the face of the huge cost—estimated to be P8 trillion—of the “Build, Build, Build” program. “(M)aintaining fiscal sustainability over the medium term will depend on the success of the priority tax reforms,” the Bank’s report said.

The report continued a warning about a possible adverse movement in interest rates in the US and other major countries. Such a movement was an important source of risk for the Philippine economy. A faster-than-expected increase in interest rates in the advanced economies, including the United States, remains a source of external risk, the World Bank stated. “Expectations of interest-rate tightening might lead to renewed capital outflows and volatility in the foreign exchange market,” it said.

With regard to Philippine trade with its main partners, the World Bank had this to say: “The (Philippines’) medium-term growth outlook remains positive and is expected to be anchored on the growth of the Philippines’ main trading partners, which would lead to a higher external demand. Imports will remain elevated.”

Taking all these factors into consideration, how does the World Bank see this country’s near-term economic growth prospects? Positively, still. “(The Philippines) is expected to continue to be the fastest-growing of the large ASEAN economies,” the Bank said.  

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