MANILA, Philippines - Strong private sector spending could take the position of government disbursement in driving economic growth this year and the next, which are expected to hit the Aquino administration’s targets, the Institute for International Finance (IIF) said.
“Renewed momentum in the economy should compensate for the moderate withdrawal of fiscal stimulus to generate real GDP (gross domestic product) growth of around seven percent this year and the next,” the Washington-based think-tank said in a Feb. 22 research note.
Specifically, IIF said the Philippine economy could grow seven percent this year and 6.8 percent next year, faster than the original estimates of 6.8 percent and 6.2 percent, respectively.
The estimates fall within government targets of six to seven percent for 2013 and 6.5-percent to 7.5 percent for 2014. Growth hit 6.6 percent last year, above the five to six percent target range, which IIF attributed to accelerated government spending.
Following the economy’s dismal performance in 2011, IIF said the National Government made the budget a “discretionary policy tool” by boosting infrastructure spending and those of other capital outlays.
Disbursements, in turn, were supported by “stringent collection” of revenues owing to the continued fight against tax evaders, smugglers and corrupt government officials.
“Last year’s upturn was due to a sharp increase in public spending aimed at spurring demand after two years of restraint, which redressed the slippage in the budget deficit that occurred in the aftermath of the global financial crisis,” IIF said.
However, this “fiscal stimulus” is bound to end this year, the organization noted, with the government looking at capping the deficit to just two percent of GDP from the emerging 2.6 percent deficit-to-GDP ratio in 2012.
This would mean slower rise in expenditures and a faster increase in revenues helped by the passage of the excise tax reform law last year. The law, which is expected to pour in about P34 billion this year, charges higher taxes on tobacco and liquor products.
While government will continue to spend, economic expansion this year will be highly leveraged on private consumption which is expected to be supported by “steady inflow” of overseas Filipino remittances, the IIF said.
Remittances, which hit a record $21.391 billion last year, have proven to be “resilient” amid the financial problems in Europe and in the United States.
“Part of the sustained strong inflows reflects the confidence that residents have in the peso and economy, which has been a major positive attribute of the strengthening in the government’s financial position,” IIF said.
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