SECRETARY of Budget and Management (DBM) Benjamin Diokno on Wednesday, October 10, said the Philippines expects economic growth to recover to 7-8 percent target next year as it pushes ahead with massive infrastructure spending plans.
According to him, the gross domestic product (GDP) growth would be back to targeted level next year, mainly bolstered by President Rodrigo Duterte’s $180-billion infrastructure building campaign.
“We are confident that we would be back on track next year,” Diokno told Reuters.
“We are very positive that our “Build, Build, Build” program will sustain growth of around 7 percent for the next 10 years,” he added.
Annual growth slowed to a near three-year low of 6.0 percent in the second quarter, leaving it set to undershoot the government’s target of 7-8 percent for this year.
The International Monetary Fund (IMF) and the Asian Development Bank (ADB) have trimmed their 2018 growth forecasts for the country, with the former expecting 6.5 percent expansion and the latter 6.4 percent.
The weak peso, which reached a near-decade high of 6.7 percent in September, also helped lift inflation.
The current high inflation was “transitory” and was mainly driven by high oil prices, Diokno said. He cited the IMF and ADB forecasts, noting the inflation would reach targeted level of 2-4 percent next year.
Diwa Guinigundo, deputy governor of Bangko Sentral Ng Pilipinas (BSP), the country’s central bank, spoke to Reuters in a separate interview saying the peso’s fall to near 13-year lows against the U.S. dollar was caused by global factors such as U.S. interest rate hikes and the U.S.-China tariff war.
“I think our currency has some fundamental bases to remain stable and strong,” he said.
He also said that monetary policy had a “very strong tightening bias” aimed at bringing inflation down to a 2-4 percent target range.
The BSP has raised interest rates a total of 150 basis points since May to contain inflationary pressures and support the struggling peso.
According to Diokno, the tariff war between the world’s two largest economies will likely result in Chinese companies investing more in Southeast Asian countries.
He said, “They (Chinese companies) might look at Indonesia, Thailand and the Philippines. That also favors us.”
However, he said the government would be “very strict” in awarding large infrastructure projects to foreign contractors to ensure the financial viability of those projects — including those from China.
“We are very careful in choosing our projects (for foreign builders),” the budget secretary said.
“We have decided to assign projects – this project will go to Japan, this one to China,” he added.
Concerns over infrastructure projects funded by Chinese debt have cropped out, mostly from Philippine senators. But Diokno assured that the government was “comfortable” with its budget deficit target of 3 percent of the GDP in the near-term, as it continued to invest more at home to cushion the impact of sluggish exports.
The IMF urged the government to adjust its budget deficit targets to make it “neutral” rather than expansionary last month to limit overheating risks and avoid overburdening monetary policy.
The IMF said a neutral fiscal stance would imply a lower budget deficit equal to 2.4 percent of gross domestic product this year and 2.5 percent next year, compared with the government’s 3 percent and 3.2 percent targets for 2018 and 2019.
The government, however, had told the IMF it was unwilling to lower the deficit target as it would result in “a lot of half finished projects,” Diokno said.