WB: Keep stimulus until private investments grow

Measures meant to stimulate the economy in response to the global downturn should continue until private sector investments are strong enough to support economic growth, the World Bank said on Wednesday. In a teleconference on Wednesday, Vikram Nehru, World Bank chief economist for the East Asia Pacific region, said the real test of recovery for countries in the region including the Philippines is when private sector growth returns. "Government stimulus should be kept in place until private sector growth continues," Nehru said in a separate economic report on countries in the region. He also said the Philippines and other developing countries in the region could achieve rapid, inclusive growth over the next decade provided they adopt deeper structural reforms. The World Bank expects the Philippines to post 3.5 percent growth this year — within the government’s 2.6 -3.6 percent goal — on the back of more money sent home by Filipinos abroad and greater public spending. Remittance support Nehru said dollar remittances from Filipinos overseas are largely responsible for keeping the Philippine economy afloat, allowing it to post growth of 0.9 percent last year amid contraction in some Asian economies. "Remittances are remarkably resilient," he pointed out. He added that for remittances to continue driving growth, governments should cut remittance costs. "It is important that the cost of remittances be reduced. It should be made as easy and as low-cost as possible," Nehru said. Money sent home by Filipinos overseas went up by almost a tenth to $1.4 billion in January from a year earlier, supported by the increased deployment of Filipino teachers, healthcare and service workers. Last year, millions of Filipinos working abroad sent home a record $17.3 billion, boosting local consumption and the economy amid the global downturn. Remittances grew by 5.6 percent from $16.4 billion in the prior year and accounted for 10.8 percent of the country's economic output. In its East Asia and Pacific Economic Update — a biannual publication assessing economies in the region — the World Bank said the Philippines and the rest of the region are facing a challenging external environment given slow recovery in Europe, tighter financial conditions and rising concerns about developed countries’ debt levels. Human capital The Philippines and its peers — Vietnam, Indonesia, Malaysia and Thailand — should prioritize investments in physical and human capital to encourage the move up the value chain in production and exports. "Countries like the Philippines must invest more and with greater efficiency in physical and human capital, foster substantially more innovative activity and encourage entrepreneurship and risk taking," the World Bank said. "Moving up the value chain will require better education and skills. The development of skills involves well-functioning and efficient education systems at all levels, combined with labor policies and active employer participation in setting education standards and curricula," it added. In a separate briefing, World Bank Country Economist for the Philippines Karl Kendrick Chua cited the need for the government to create a strong revenue base to ensure inclusive growth that benefits all sectors. "With the additional resources, the government can spend more on growth-enhancing systems such as education and infrastructure," he added. Chua said the Finance department is on the right track in pushing crucial revenue measures that seek to rationalize fiscal incentives and raise taxes on tobacco and alcohol. The World Bank earlier said the magnitude of the fiscal stimulus implemented by the Philippine government in 2009 had been unprecedented. The large fiscal stimulus, it said, had helped buffer economic activity in 2009, but it also pushed the government’s primary fiscal balance into its first deficit since 2002, the estimated public sector balance into its first deficit since 2005, and led to the highest debt-to-GDP ratio since 2003. It noted that while the government aims to balance the budget by 2013, it should accompany this commitment with detailed measures and embed these within a medium-term fiscal and expenditure framework. — NPA, GMANews.TV