RP needs faster growth for high-income status

The Philippines should exploit global trade, keep a stable macroeconomy and muster high savings and investments if it wants to achieve growth of 7 percent or more in the next quarter-century — a feat achieved by its more advanced neighbors, the World Bank said on Monday. Speaking to the Foreign Correspondents Association of the Philippines (FOCAP), World Bank Country Director Bert Hofman also cited the need to let markets allocate resources and have a credible and capable government to speed up growth. "Fast sustained growth is not a miracle; it is attainable for developing countries with the ‘right mix of ingredients,’" he said, citing a World Bank-commissioned study in 2008. "Any policy action, proposal, or law that signals commitment to these elements should therefore be capable of accelerating growth." Hofman said the Philippines needs to grow faster if it wants to see its income levels become comparable to developed countries within a generation. He said average growth of 5 percent had not been enough to make a serious dent on poverty, "which today is probably about as high as it was at the start of the last decade." Long-term growth At current growth rates, the Philippines would be as rich as today’s China in 25 years, he said. And in roughly half a century from today, it would reach income levels of Malaysia today to become an upper middle-income country, and seventy years from now it will reach the $12,000 per capita high income threshold that the World Bank uses for its country classification. He said the average high-income country currently has a per capita income of $36,000, or more than 20 times the level of the Philippines now. "The blessings of compounded growth imply, however, that higher growth more than proportionally eats into the time it takes to reach high income level," he pointed out. Hofman noted that with 5 percent per capita growth, it takes a little over four decades to reach high-income status and with 7 percent per capita income growth, the same can be achieved in a little over three decades. "Moreover, international experience shows that as growth accelerates, fertility and population growth declines, so per capita growth can accelerate more rapidly than GDP (gross domestic product) growth," he added. Hofman said the Philippines has restored macroeconomic stability, mainly on the back of rapidly growing remittances that stabilize the peso and build the country's foreign exchange reserves. He also said the country now enjoys a savings rate that well exceeds investment, and its human resources are in high demand around the world. One major bottleneck for the country, however, is the investment climate, Hofman said, particularly insufficient insufficient infrastructure; human resource investment that falls short of levels required to grow faster and lift people out of poverty; and governance issues. "While the Philippines enjoys a reasonable quality of civil service and regulation, anti-corruption and policy consistency seems to fall short of the standards that mobile investors expect nowadays of a lower middle-income country," Hofman said. The country particularly needs more consistency policies, which he said should be high up the agenda for any government, "and actions that reinforce such commitment would be much welcomed by the business community." Inclusive growth A crucial success factor of economies like China, Taiwan, Thailand, Hong Kong, Indonesia, Japan, South Korea, and Taiwan is "inclusive growth" — one that benefits all sectors of society, particularly the poor, Hofman pointed out. "What I find striking from the insights of policymakers in rapidly growing countries is their focus on inclusive or shared growth," Hofman said. The World Bank country director said the government should provide people with better, if not equal opportunities, by having a level playing field in markets, improving access to education and by providing equal protection under the law. Hofman said making sure that growth benefits all makes it easier for policymakers to argue for the reforms needed to accelerate growth. "It’s really all about making growth work for the poor… Of course, not all will always benefit from growth all the time, and providing a minimum safety net for those that cannot, or cannot yet participate again makes good sense economically, socially, and politically," he added. — Norman P. Aquino, GMANews.TV