While Manila pivots to Beijing under President Duterte’s “independent” foreign policy to foster closer economic and military ties with the mainland, expect the Philippines to outpace China’s growth in the next few years, Standard Chartered Bank said.
In an Oct. 27 report titled “Asia—Let’s talk about 65 percent (of world growth),” Standard Chartered said it seemed that “India, Vietnam and the Philippines are the most likely candidates to grow faster than China in the coming years.”
“This is both due to China’s growth gradually declining from current levels and investment playing a bigger role in driving growth in these three less developed nations,” said David Mann, Standard Chartered chief economist for Asia.
As investors eye countries whose governments are ramping up public investments, “markets are more likely to favor economies where public sector delivery on investment is improving, such as Indonesia, Thailand and the Philippines,” Mann said.
“In the Philippines, investment has been a pillar of growth this year, rising strongly by 27.4 percent year-on-year in the second quarter. The new government is signaling that it intends to accelerate existing plans for economic development,” Mann noted.
“Moving more existing public-private partnership (PPP) projects to the implementation phase would crowd in even more private sector investment. Of the 55 PPP projects fast-tracked by the previous government, 12 are progressing. A change in this figure over the next year will be a good measure of policy progress on investment projects,” according to Mann.
In a recent speech, Budget Secretary Benjamin E. DIokno said there were 40 PPP projects worth P1.14 trillion in the pipeline. These include big-ticket projects such as the P170.7-billion North-South Railway and the P122.8-billion Laguna Lakeshore Expressway Dike.
“By the end of 2017, we aim to roll out 17 PPP projects worth an estimated P580 billion. This is on top of the P8.2 trillion” that the Duterte administration plans to spend on “hard” infrastructure in the next six years to raise the share of infrastructure spending to the gross domestic product (GDP) to 7.2 percent by 2022, Diokno said.
Mann said that during a recent visit to Manila, “we observed rising optimism among the local business community that GDP growth may be as high as 7 percent over the next five years,” to exceed last year’s 5.9-percent expansion as well as Standard Chartered’s forecast of 6.8-percent growth this year.
However, “we acknowledge the risk that the Philippines’ capital goods imports may continue at a runaway pace, which could push the current account into a deficit, at least briefly, in the coming six to nine months,” Mann said.
“The country’s balance of payments (BOP) issue is receiving a lot of attention from investors. Our base case scenario is for the current account surplus to remain largely in place, though at a much reduced 1.1 percent of GDP in 2017, compared with 3.8 percent in 2014. We expect the goods deficit to widen further, but not to the same degree as previously seen,” he added.
“Business process outsourcing (BPO) services exports will likely take over from overseas worker remittances as the most important driver of the current account balance in the coming years. Tourism earnings are also likely to continue rising, albeit from a low base,” Mann said.
The Bangko Sentral ng Pilipinas expects the current account surplus to slide to below $5 billion next year as the country spends more dollars on imported capital goods amid the resurgence of the manufacturing sector.
“It’s true that the current account is another buffer, it’s another indicator that many observers—investors and credit rating agencies—are looking at. But they have to consider the state of the economy—the Philippine economy is growing,” BSP Deputy Governor Diwa C. Guinigundo said.
“When we are growing, we need a lot of infrastructure. We need a lot of importation especially of capital goods, raw materials and intermediate products. That pulls down your current account position and reduces the current account surplus. But that is not exactly bad,” Guinigundo explained.
“In a sense, it is investing for your future—the ability to process and produce goods and improve your ability not only to export but also to produce for the domestic economy,” according to Guinigundo.
A recent BSP report showed that the trade deficit as a result of the rise in imports and decline in exports narrowed the current accounts surplus to $778 million at the end of the first half.
The end-June current account surplus, equivalent to 0.5 percent of the GDP, declined from $5.3 billion or 3.7 percent of GDP a year ago.