World Bank cuts PH economic growth outlook to 5.8% from 6.4% in 2019
The World Bank has slashed its economic growth projections for the Philippines for this year and in the succeeding two years due to slowdown in public spending and weak external environment brought about by the escalating trade tensions between the United States and China.
In its Philippine Economic Update released on Thursday, the Washington-based lending agency said gross domestic product could expand by 5.8 percent in 2019, before recovering to 6.1 percent in 2020 and 6.2 percent in 2021.
The estimates were lower compared to the 6.4 percent in 2019 and 6.5 percent in 2020 and 2021 as reflected in the April 2019 edition of the update.
The government set a growth goal of 6-7 percent this year and 6.5-7.5 percent in 2020.
"The downward revisions incorporate downside risks that have materialized since the April 2019 edition of the Philippine Economic Update, such as the slowdown in public spending, particularly on infrastructure, prevailing market anxiety about the impact of global economic developments on the Philippine economy, including weak global manufacturing activity and trade, as well as heightened uncertainty from escalating trade tensions," the World Bank report said.
It noted that the delay in the passage of the 2019 budget and the May election spending ban had hampered domestic growth, especially on capital formation.
For the first four months of this year, the Philippine government operated under a reenacted budget due to the delay in the passage of the P3.757 trillion budget.
"Given the weak external environment, net exports will remain subdued," the update said, citing that global growth is projected to decline from 3 percent in 2018 to 2.6 percent in 2019, before rising to 2.7 percent to 2.8 percent in 2020 and 2021, respectively.
"Growth among advanced economies will be substantially lower at 1.7 percent in 2019 and 1.5 percent in 2020-21, which will soften the demand for Philippine goods, as roughly 70 percent of the country's exports are destined for high-income economies," it said.
It warned that a prolonged global technology downturn would hurt the Philippines' export performance since electronics components constitute nearly half of the value of its exports.
The World Bank also sees future growth remittances to be modest due to an already high base despite still strong demand for overseas Filipinos given the new opportunities in advanced economies like Japan and Germany.
However, the World Bank has projected private consumption to accelerate this year to 5.9 percent from 5.6 percent last year, owing to lower inflation.
Meanwhile, the World Bank cautioned the Philippines from the possible effect of the passage of the government's proposed reform measures, such as the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, on business environment.
Thus, it urged the Philippine government to continuously communicate the progress and details of the proposed reform to lessen uncertainties within the business community.
"International experience demosntrates that corporate tax reforms are complex, and governments often face strong opposition when implementing reforms, as changes usually involve winners and losers. Countries that have successfully managed to introduce tax reforms tend to pay special attention to clearly communicating the process and content of the reform, as well as carefully setting up an implementation plan," it said.
Aside from continuously communicating the progress in the tax reform, the World Bank said the Philippine government should also create a set of clearly defined implementing regulations to reduce discretion by implementing agencies and regulators to achieve the goal of simplifying and making tax incentives more transparent and improve governance.
The CITIRA bill, which aims to improve the Philippines competitiveness by improving the fairness, efficiency, and equity of the country's tax system, is still pending in Congress. Celerina Monte/DMS