Philippine economy to grow 6.4 pct through 2016 -- S&P By: Maricel E. Burgonio, August 19, 2013 8:03 AM
Posted last 2013-08-24  |  
MANILA - Standard and Poor’s (S&P) sees the Philippine economy growing by 6.4 percent through 2016 on the back of government efforts to improve the country’s investment climate.

In a report, the credit rating firm said a number of constraints however remain, including the failure of job creation to pick up alongside the country’s robust economic growth. In the first quarter, Philippine gross domestic product (GDP) grew a record 7.8 percent, but the unemployment rate stood at 7.5 percent, unchanged from the previous quarter.

“The apparent disconnect between growth and employment highlights the absence of a comprehensive long-term industry plan as successive administration have been inclined toward minimal state intervention in the economy,” S&P said.

It said the government may consider some targeted intervention within an industry policy framework to enhance employment prospects and preserve social and political instability.

Besides job creation, S&P also cited other constraints, such as infrastructure gaps, restrictions on foreign ownership, a shallow capital market and monopolies in many industries.

“The concentrated nature of many product and service markets in the economy, infrastructure shortfalls, and restrictions on foreign ownership deter foreign investment and growth prospects [whereas] the fairly low level of bank intermediation and lack of depth and diversification of the domestic financial system and capital markets constraints the effectiveness of policy transmission,” the rating firm said.

S&P said the Philippine economy’s low income level remains a key rating constraint, with per capita GDP below of most sovereigns with a similar rating.

S&P said it may further raise its ratings on the Philippines if it could show improvements in infrastructure, human capital and sustain investor confidence. The debt watcher last April raised the country’s credit score to investment grade with a stable outlook, reflecting the country’s strengthening external profile, moderating inflation, and the government’s declining reliance on foreign currency debt, which has fallen to 36 percent of the total from 50 percent a year ago.

“Conversely, we may lower the ratings if the Philippine external performance weakens significantly and external inflows prove difficult to manage and spur overheating in the economy that contributes to banking pressures,” S&P said.

“We may also lower the ratings if problems at one of the large conglomerates impair investor confidence or if political developments cause the government to veer from its commitment to improving governance,” the rating firm said.

The International Monetary Fund (IMF) in an April report raised concern about debt problems in a local conglomerate, but stopped short of identifying the troubled firm. A report detailing this in a local newspaper last month led to a selloff in San Miguel Corp, but the Bangko Sentral ng Pilipinas (BSP) has since allayed this concern, adding that credit quality remains high