RP needs to guard vs euro debt crisis - WB

If the Philippines is to improve its public finances, it will certainly guard itself from the potential impact of the European sovereign debt crisis. This was the message gleaned from the World Bank's the Philippine Quarterly Update (PQU) on Wednesday. "A credible plan towards fiscal consolidation over the medium-term — along with measures to manage fiscal risks — would significantly reduce the Philippines' exposure to the worsening European debt problems," the report said. "Such credibility could be achieved, for example, by designing a comprehensive and multi-year reform package," it added. Earlier, concerns about rising indebtedness of European countries, including Greece, Spain, and Portugal, have raised fears that the global economy might slide back to recession and cause further difficulties in developing countries like the Philippines. "[The] Aquino administration's focus on increasing the efficiency of revenue collection and expenditures is welcome in that regard and is expected to generate important fiscal space," said Eric Le Borgne, a senior economist at the World Bank. "The government would need more funds for education, health, and other social programs so that marginalized sectors could equitably share in the benefits of growth in a sustainable way," he added. The PQU said the contagion from the European sovereign debt problems is so far limited to a few non-European countries like Argentina and Venezuela. Minimal linkages "The Philippines has minimal direct trade and financial linkages to troubled economies in Europe's periphery," the report said. "The five at-risk economies — Greece, Spain, Italy, Ireland and Portugal — account for modest shares of annual trade and investment flows of the Philippines." It said the country's relations with Greece, the epicenter of the crisis, deal mostly with Filipino workers, many of whom are in the maritime industry, where remittances have actually increased during the global financial crisis. The PQU predicts that the Philippine economy will grow by 4.4 percent in 2010 and 4 percent in 2011, supported by a global recovery in trade. It said the country's growth potential could be much higher given the new administration's strong reform and anti-corruption agenda that could shore up business confidence. "While large fiscal risks in some European countries have dampened growth prospects in that region, the global growth outlook remains favorable especially for emerging markets, including the Philippines," Le Borgne said. "Domestic reforms would be a catalyst for higher growth," he stressed. The PQU also expected that the dollar remittances from overseas Filipino workers (OFWs) will increase by 8 percent this year, but almost flat in real peso terms because of inflation and a stronger peso compared to 2009. It said the deployment of OFWs accelerated during the recent global financial crisis, partly because top OFW destinations were not as affected as the rest of the world. —VS, GMANews.TV