World Bank slashes PH growth forecast below 6%

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The World Bank cuts its growth forecast to just 5.8% for 2019 as it sees challenges to the government's catch-up plan on spending.

Metro Manila (CNN Philippines, October 10) — The World Bank further downgraded its forecast for the Philippines for 2019 as economic growth hit its slowest level in eight years during the first semester.

The World Bank has revised its forecast to 5.8 percent, much lower than the 6.4 percent it gave in April. This falls short of the government’s 6 to 7 percent target for 2019, factoring in a huge drop in public investments, resulting from the delayed passage of the 2019 national budget, alongside slower private investments amid weaker global economy.

The international lender said the revised forecast takes into account implementation challenges that may prevent a full catch-up on public spending.

The government has released about 90 percent of the national budget in the first seven months of the year, according to the Department of Budget and Management.

READ: 89.1% of national budget released in seven months – DBM

According to World Bank Senior Economist Rong Qian, the challenge now is the procurement process after the budget has been approved, which is known to be rather long in the Philippines.

“Since the new budget is on a cash basis, whatever is not procured by this year will not be spent," she added, "If the estimate of procurement is longer than the rest of the year, then probably the agency will not procure, and that is one of the reasons the catch up plan cannot be fully fulfilled.”

The World Bank said the absorptive capacity of the private sector to carry out all these infrastructure projects is another challenge to the government’s bold catch-up plan.

“The budget delay caused an accumulation of projects and now that the budget has passed, they all go to the market at the same time. The private sector, particularly the construction sector and small LGUs, they don’t have the absorptive capacity,” Qian said in a briefing on Wednesday.

READ: Government spending speeds up in August

Growth is expected to pick up in the coming years. The lender expects the economy to expand by 6.1 percent in 2020 and 6.2 percent in 2021. This is lower than its previous forecast of 6.5 percent for 2020 and 2021, but would fall below annual targets set at 6.5 to 7.5 percent and 7-8 percent, respectively.

Qian said public investment will be one of the main drivers because the infrastructure gap still exists, and the administration’s priority to spend more on infrastructure will continue.

“Private investment should pick up once the uncertainty around the corporate tax reform is resolved. The private investment that was on hold should start coming in again,” she added.

The Philippines finds itself in the middle of the pack compared to its neighbors. The World Bank sees growth in developing East Asia-Pacific at 5.8 percent this year, led by Cambodia (7 percent) and Mongolia (6.9 percent). Meanwhile, Thailand (2.7 percent) and Malaysia (4.6 percent) will see the slowest expansion.

Locally, things are looking up with September inflation hitting a fresh three-year low, driving private consumption near the holiday season. Unemployment and underemployment rates in the country have also reached their lowest levels in over a decade, based on data from the World Bank.

However, looming risks on the external environment pose threats to Philippine growth. Trade tensions between the United States and China persist, since the US recently put 28 Chinese entities on a blacklist that effectively bars them from importing American technology, amid ongoing trade talks. Advanced economies across the globe are also experiencing a slowdown in growth, increasing the risk of a recession.