The Philippines is now enjoying a golden age of economic growth never before seen in at least 40 years, according to the Asian Development Bank (ADB).
In a briefing on Wednesday, ADB Philippine Country Office Director Kelly Bird said this kind of growth is based on solid macroeconomic fundamentals that can be sustained in the medium term.
“I say this to my colleagues, the Philippines is in like a golden age for its economic growth. It has been growing at this pace for several years, and it is in its strongest economic expansion in over 40, 50 years,” Bird said.
“It’s quite a virtuous cycle, that’s why I call it a golden age for the Philippines, because it’s growing in a very sound macroeconomic policy framework,” he added.
Bird said the Philippines’s recent economic growth occurred at a time when there is also moderate inflation, low deficit, declining debt and investment-grade rating.
He added the Philippines’ fiscal position remains strong with a deficit of only 2.2 percent of GDP and national debt standing at around 42 percent of GDP, the lowest in 20 years.
This will be strengthened by the revenues to be collected from the Tax Reform for Acceleration and Inclusion program. Bird said the country is expected to collect P90 billion this year and P140 billion next year.
Bird also said the country’s fixed investment rate increased to 25 percent of GDP after years of languishing at only 10 percent to 20 percent of GDP
He added the strong employment numbers, which, as of the January Labor Force Survey, showed an unemployment rate of 5.3 percent and employment rate of 94.3 percent.
“This growth is [going to be] sustained in 2018 and 2019. We also believe that reforms are in place to support the government’s infrastructure plan that will continue to sustain growth over the medium term,” Bird said.
“I think the infrastructure plan can sustain that over the next two to three years. I think its important to do that to end poverty, which is relatively high compared to high income countries,” he added.
In the latest Asian Development Outlook report, ADB projects Philippine GDP growth at 6.8 percent this year and 6.9 percent in 2019, up from 6.7 percent in 2017.
ADB said rising domestic demand, remittances, and employment, in addition to infrastructure spending, will drive growth.
However, Bird said, due in part to high economic growth, inflation is expected to reach 4 percent in 2018 and 3.9 percent in 2019.
Bird said high inflation usually accompanies economic growth because of increased demand. He said, however, a 4-percent inflation rate is not a cause for alarm.
“The economy is growing highly and likely to be sustained. The pick up in inflation of 4 percent is also indicative of a successful economy. You can’t have economic growth at that pace and expect very low inflation. And at the level of 4 percent, historically it’s low, relatively moderate, so I wouldn’t be particularly concerned with that inflation rate,” Bird stated.
The report notes there are external risks to the Philippines’s growth outlook from heightened volatility in international financial markets and uncertainty about global trade openness, although the country’s strong external payments position would cushion these effects.
A major policy challenge to the country’s growth outlook, according to the report, is managing the rollout of the government’s “Build, Build, Build” infrastructure program, which is expected to raise public infrastructure spending to 7.3 percent of GDP by 2022, from 4.5 percent in 2016.
The report provides suggestions on ways to enhance government capacity, including strengthening coordination between government agencies and improving technical capacity of staff within these agencies, and fostering stronger partnerships between government agencies, the private sector and development partners.