ADB doubts RP can sustain economic growth. Warns of exodus of skilled
MANILA, Philippines -- The Asian Development Bank on Thursday castdoubts on whether the Philippine economy could sustain the high-growthmomentum seen last year and warned that the large cash remittances
inexchange for the exodus of Filipino workers may be causing moredisparity between the rich and poor.In a press briefing, ADB chief economist Ifzal Ali presented thebank's new diagnostic study -- "Philippines: Critical DevelopmentConstraints"-- which indicated that the country had fallen way behindits East and Southeast Asian neighbors over the past five decades andthus must do much more to boost growth and reduce poverty.Ali added that the ADB had started a separate and "very important" newpiece of research tracking the flow of overseas Filipino worker (OFW)remittances which now equaled about 12 percent of the country's grossdomestic product (GDP), or the total amount of goods and servicesproduced by the domestic economy."What we looked at is where the remittances go. It goes to
therelatively better off. In fact, if you look at the rural poor, theirremittances are from the NCR (National Capital Region)," Ali said."It increases income as well as expenditure inequality.... We foundthis to be a very significant finding -- that the foreign remittancesdon't really go to the poor; they go to the next tier," he said.The economist said the ADB will release to the public the results ofthe new study once completed. But the diagnostic study unveiledThursday, he said, already addressed the underlying issues behind theOFW phenomenon -- the need to create opportunities at home and toenhance the capability of the populace to benefit from theseopportunities -- in order to result in "progressive prosperity" forthe nation."What's happening is that migration particularly among the skilledworkers is high. The country is losing not only human capital but itis also losing a lot of the investment
made in educating theseworkers," Ali said, explaining his skeptical view on any economicmodel that relies on overseas remittances.The study released Thursday cited the urgent need for the Philippinesto raise revenues, improve infrastructure, strengthen governance tobuild investor confidence, expand its industrial base and improveaccess to employment and development opportunities.The three-decade-high 7.3 percent growth in gross domestic productachieved last year versus the 4.67 percent average from 2001 to 2006,Ali said, was largely due to the government's pump-priming in thefirst half of the year associated with election spending.For such a growth momentum to be sustained for many years, Ali said,investment levels much higher than what's seen in the Philippines nowwere greatly needed."If you look at what's happening in the neighboring countries, they'realways 10 percentage points higher (in terms
of investment ratio toGDP). This is the reason why we feel that the 7.3 percent that wewitnessed in 2007 is not a start of a spurt in growth rate over timewhich can be sustained for many years," Ali said.The chief ADB economist cited the need to boost investments inphysical infrastructure and human capabilities as well as to make moreefficient use of both existing stock of capital and labor."Only then can the higher rates of growth be sustained; otherwise itwill just be a flash in the pan," he said.The ADB study lamented the slow pace of poverty reduction and"stubbornly high" income inequality in the country. Based on thelatest government data, 26.9 percent of Filipino households in 2006were below the official poverty threshold, up from 24.4 percent in2003.The Gini coefficient of per capita income, a key measure of incomeinequality, was slightly above 0.45 -- the highest among SoutheastAsian
economies.The ADB report identified a number of critical constraints to growthand the fight against poverty in the next five to eight years.First, the study said the fiscal situation remained tight despite thegovernment making good progress to reduce deficits and to balance thecash budget this year, noting that much of the reduction in fiscaldeficit was driven by deep cuts in spending on social and economicservices as well as sale of government assets.Secondly, it said declining public and private sector investments ininfrastructure had led to inadequate and poor infrastructure andbottlenecks, raising the cost of doing business and eroding thecompetitiveness and attractiveness to both foreign and localinvestors.Third, it said the poor performance on key governance aspects, inparticular control of corruption and political stability, had erodedinvestor confidence.The report argued that the
government's inability to address marketfailures of various kinds had also hampered the expansion anddiversification of its industrial base. It cited the need for thegovernment to play a more proactive role in overcoming coordinationand information failures that could lead to under-investment inknowledge and innovation, discourage entrepreneurship and constraindiversification.It also looked at other constraints like low domestic savings, theefficiency of domestic financial intermediation and cost of borrowingand human capital issues, but found them to be less critical for now.But Ali said the ADB's recommendations would require five to eightyears of implementation and could not be achieved overnight.Asked whether poor governance was a major factor behind the country'sfailure to take off, Ali said it could be a confluence of manyfactors."It could be caused by external shocks, for example, a downturn
in theelectronics cycle as the Philippines is so dependent on electronicexports. It could happen from not addressing some of the macroeconomicinstability which leads to lack of confidence in terms of privateinvestors and it could happen as a result of natural disasters. Itcould be political instability. It could be a whole gamut of factorsthat are at play," Ali said.-By Doris Dumlao, Philippine Daily Inquirer-
inexchange for the exodus of Filipino workers may be causing moredisparity between the rich and poor.In a press briefing, ADB chief economist Ifzal Ali presented thebank's new diagnostic study -- "Philippines: Critical DevelopmentConstraints"-- which indicated that the country had fallen way behindits East and Southeast Asian neighbors over the past five decades andthus must do much more to boost growth and reduce poverty.Ali added that the ADB had started a separate and "very important" newpiece of research tracking the flow of overseas Filipino worker (OFW)remittances which now equaled about 12 percent of the country's grossdomestic product (GDP), or the total amount of goods and servicesproduced by the domestic economy."What we looked at is where the remittances go. It goes to
therelatively better off. In fact, if you look at the rural poor, theirremittances are from the NCR (National Capital Region)," Ali said."It increases income as well as expenditure inequality.... We foundthis to be a very significant finding -- that the foreign remittancesdon't really go to the poor; they go to the next tier," he said.The economist said the ADB will release to the public the results ofthe new study once completed. But the diagnostic study unveiledThursday, he said, already addressed the underlying issues behind theOFW phenomenon -- the need to create opportunities at home and toenhance the capability of the populace to benefit from theseopportunities -- in order to result in "progressive prosperity" forthe nation."What's happening is that migration particularly among the skilledworkers is high. The country is losing not only human capital but itis also losing a lot of the investment
made in educating theseworkers," Ali said, explaining his skeptical view on any economicmodel that relies on overseas remittances.The study released Thursday cited the urgent need for the Philippinesto raise revenues, improve infrastructure, strengthen governance tobuild investor confidence, expand its industrial base and improveaccess to employment and development opportunities.The three-decade-high 7.3 percent growth in gross domestic productachieved last year versus the 4.67 percent average from 2001 to 2006,Ali said, was largely due to the government's pump-priming in thefirst half of the year associated with election spending.For such a growth momentum to be sustained for many years, Ali said,investment levels much higher than what's seen in the Philippines nowwere greatly needed."If you look at what's happening in the neighboring countries, they'realways 10 percentage points higher (in terms
of investment ratio toGDP). This is the reason why we feel that the 7.3 percent that wewitnessed in 2007 is not a start of a spurt in growth rate over timewhich can be sustained for many years," Ali said.The chief ADB economist cited the need to boost investments inphysical infrastructure and human capabilities as well as to make moreefficient use of both existing stock of capital and labor."Only then can the higher rates of growth be sustained; otherwise itwill just be a flash in the pan," he said.The ADB study lamented the slow pace of poverty reduction and"stubbornly high" income inequality in the country. Based on thelatest government data, 26.9 percent of Filipino households in 2006were below the official poverty threshold, up from 24.4 percent in2003.The Gini coefficient of per capita income, a key measure of incomeinequality, was slightly above 0.45 -- the highest among SoutheastAsian
economies.The ADB report identified a number of critical constraints to growthand the fight against poverty in the next five to eight years.First, the study said the fiscal situation remained tight despite thegovernment making good progress to reduce deficits and to balance thecash budget this year, noting that much of the reduction in fiscaldeficit was driven by deep cuts in spending on social and economicservices as well as sale of government assets.Secondly, it said declining public and private sector investments ininfrastructure had led to inadequate and poor infrastructure andbottlenecks, raising the cost of doing business and eroding thecompetitiveness and attractiveness to both foreign and localinvestors.Third, it said the poor performance on key governance aspects, inparticular control of corruption and political stability, had erodedinvestor confidence.The report argued that the
government's inability to address marketfailures of various kinds had also hampered the expansion anddiversification of its industrial base. It cited the need for thegovernment to play a more proactive role in overcoming coordinationand information failures that could lead to under-investment inknowledge and innovation, discourage entrepreneurship and constraindiversification.It also looked at other constraints like low domestic savings, theefficiency of domestic financial intermediation and cost of borrowingand human capital issues, but found them to be less critical for now.But Ali said the ADB's recommendations would require five to eightyears of implementation and could not be achieved overnight.Asked whether poor governance was a major factor behind the country'sfailure to take off, Ali said it could be a confluence of manyfactors."It could be caused by external shocks, for example, a downturn
in theelectronics cycle as the Philippines is so dependent on electronicexports. It could happen from not addressing some of the macroeconomicinstability which leads to lack of confidence in terms of privateinvestors and it could happen as a result of natural disasters. Itcould be political instability. It could be a whole gamut of factorsthat are at play," Ali said.-By Doris Dumlao, Philippine Daily Inquirer-
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