Spending plans, reforms seen optimizing growth

EARLY signs the government under President-elect Rodrigo R. Duterte will engage in an infrastructure buildup program and spend well above the budget this year is driving optimism the local output, measured as the GDP, should grow more or less 7 percent, according to Maybank ATR Kim Eng Securities.

The investment bank and securities brokers’ economist and research head Luz Lorenzo said the $285-billion economy already expanded by 6.9 percent in the first quarter, such that a full-year performance averaging 7 percent should not be too far off the mark.

“The second half, of course, that’ll be the new administration. But we are encouraged by the fact the new administration seems to be moving quickly. So we think we will be able to do some spending fast and that is why we’re looking at 7 percent for the full year,” she told financial reporters at the sidelines of the firm’s midyear market outlook seminar.

She added the anticipated budget deficit as percent of GDP, equal in this case to 5 percent, should help boost growth for the year. Should the government achieve its target infrastructure-buildup goals, growth averaging 7 percent should also prove inclusive or beneficial on the greater number of Filipinos overall.

Data from the Department of Budget and Management show the government spending below potential in 2015, as the disbursements for infrastructure and capital outlays amounted to only P345.3 billion.

Lorenzo said this was significantly short of the P431.6-billion spending program. Still, infrastructure spending went up by 25.1 percent compared to 2014.

“I think the easy part is infrastructure spending, because there is money. All you need to do is spend it,” she said of the more than P1-trillion spending program under the 2016 budget plan.

Also a pressing concern among investors is the effect of Britain’s withdrawal from the European Union, which caused volatility in the markets. Lorenzo was confident the instability will only be short lived, as the country has no direct trading ties with Britain.

“On Friday the index fell, but there was net foreign buying, which means it was the locals who got scared. The foreign investors were able to differentiate,” she said.

The other impact of the Brexit would be if the US Federal Reserve (the Fed) delays its own interest-rate adjustment, which then enables the Philippines to have breathing space to strategize and observe the movement in the markets.

Lorenzo said it’s a good thing the country isn’t externally dependent for growth and owns a healthy economic environment, with low lending rates and minimal inflation backed by strong business-process outsourcing earnings and overseas Filipino worker remittances.

Gaining these objectives to achieve 7-percent growth would require reforms. With a tax reform being part of incoming President Duterte’s economic agenda, the only external impediment to further growth includes China’s slowing growth and the US Fed’s interest-rate adjustment.

The local currency has also been holding its own against the US dollar, the rate having thus far averaging within forecast levels. The local unit averaged P46.337 per dollar in June thus far.

“We allowed room for it to fall because of external developments, whether Brexit, the US Fed adjustment. We’ve factored in some space for the peso to depreciate…and if the peso depreciates to what we’ve forecasted, that’s a depreciation of 4 percent, so it’s not big,” she added.

June 6, 2016

Source: http://www.businessmirror.com.ph/


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