THE Philippines needs to increase investments in infrastructure and social services by about P1 trillion in the next five years to sustain a growth of 6 percent and improve its chances of eradicating poverty in one generation, according to the World Bank.
In a briefing on Wednesday, World Bank senior country economist Karl Kendrick Chua said the country’s investment deficit has reached P950 billion, or 6.8 percent of the country’s current gross domestic product (GDP).
“Historically, the Philippines underinvested in physical capital and even more so in the last 10 years. Comparing the Philippines with our fast-growing Asean neighbors, the country also underinvested,
especially in infrastructure and education,” Chua said. The World Bank estimates showed that the country’s infrastructure deficit has reached 2.5 percent of GDP, or P350 billion, while the underinvestment in social services amounts to 4.3 percent of GDP, or P600 billion.
The investment deficit has resulted in “monstrous traffic, flight delays and delays in importation,” as well as the decline in the country’s competitiveness in sectors such as electronics.
Chua said to address this investment deficit, the Philippines needs to generate 3.8 percent of GDP, or P530 billion, from improved tax administration and 3 percent of GDP, or P420 billion, from increased tax revenues.
He added that the country can also opt to borrow some of these funds but would burden the future generations of Filipinos with this debt.
“The current system cannot raise that revenue because the system is quite complex, inequitable and inefficient. So there needs to be a lot of thinking about how we can make our tax system simpler, more equitable and more efficient,” Chua said.
If the Philippines fails to address its investment deficit, the country will not be able to sustain a growth of 5 percent to 6 percent over a longer period of time, which is needed to reduce and subsequently eradicate poverty.
Chua said based on the World Bank’s estimates, the Philippines will reach its potential GDP by 2017. This potential GDP takes into consideration the current state of the economy, which is largely consumption driven.
The World Bank economist said 80 percent of the economy is consumption based. This means 70 percent of this consumption comes from household spending and the remaining 10 percent is government spending.
He said there is also a need to increase investments because of the gains achieved by the country in the past few years. These gains placed the Philippines on track to achieving its target of bringing down poverty to 18 percent to 20 percent by 2016 from the current 24.9 percent.
World Bank lead economist Rogier van den Brink explained that this brought down the country’s poverty elasticity in such a way that for every 1-percent increase in GDP per capita, the rate of poverty incidence declines by more than 2 percent.
“Over the long term, if we are able to sustain 6-percent growth at this level of elasticity, we can double per-capita income in one decade, raise it five times in two decades and multiply it by 11 times in three decades,” van den Brink explained.
“This means it is very possible to eradicate poverty and boost shared prosperity within one generation,” he added.
Meanwhile, van den Brink explained that the bank revised its growth estimates for 2014 downward to 6 percent from 6.4 percent on the back of weak growth in the first three quarters of last year.
However, van den Brink said the Philippines’s economic growth would rebound to 6.5 percent in 2015 and 2016. The Washington-based lender forecast lower GDP growth in 2017 at 6.3 percent.
Van den Brink said these estimates are based on the government’s efforts to implement the Yolanda master plan and increase spending in the near term.
He said this growth will also be supported by strong consumption in the near term. Consumption will be fueled by the positive consumer outlook, stronger foreign direct investment flows and low oil prices.
“Much lower oil prices can boost manufacturing and consumption. In fact, the Philippines is one of the biggest beneficiaries of falling oil prices in the world,” van den Brink said.
While the World Bank estimates that global economic growth will increase to 3 percent this year
and 3.3 percent in 2016 and 2017, risks remain.
These risks include the weak recovery in the United States and the euro zone, as well as the Japanese and Chinese economies in the near term.
The open economies in the East Asia and the Pacific region make countries like the Philippines vulnerable to these external shocks through weaker trade and investment flows.
Image credits: Alysa Salen
2 comments
kakainit ng ulo ang ka inutilan ni noynoying
No government should be borrowing now. The acceptable means for govt to earn is to improve taxation and revenue generation. This article is correct in a lot of levels. Improving our economy will take decades and perhaps a generation to get it where we want to, but it involves our need to participate and willingness to pay our dues.
The germans are frugal in their earnings, insurance and religious payment of tax dues is part of their lifestyle. Had they not been pulled down by the EU system, they would be the leading economy of the world right now.
We must improve our attitude(s) as nation builders. We should stop being selfish and bratty when it comes to paying taxes. This is our small part of contributing to our country’s growth.