Politics seen to temper 2015 growth

Foreign and local investors are expected to watch political developments in the coming 12 months—the last full year of President Aquino’s term—that could temper the country’s economic prospects. Focus has turned to next year’s elections, with investors worried over the sustainability of reforms after the chief executive steps down. PHOTO by Noy Morcoso/INQUIRER.net

MANILA, Philippines—Foreign and local investors are expected to watch political developments in the coming 12 months—the last full year of President Aquino’s term—that could temper the country’s economic prospects.

Singapore’s DBS, Southeast Asia’s largest bank, said the country was on track to do better in 2015 than it did in 2014, citing a possible resurgence in the manufacturing sector due to the resolution of the congestion at Manila’s ports.

Higher government spending and the ongoing boom in the business process outsourcing (BPO) sector would also provide a lift to economic activity, DBS said.

“Political wild card is the main potential impetus to the market, given abundant domestic liquidity,” DBS said in a report last week.

President Aquino’s administration has overseen a turnaround for the Philippine economy. Thanks to more prudent fiscal management and its efforts to fight corruption in the last four and a half years, the government earned “investment grade” ratings from all major international credit agencies. Average growth rates have also risen above average levels in the 10 years prior to 2010.

Focus, however, has turned to next year’s elections, with investors worried over the sustainability of reforms after the chief executive steps down.

DBS said President Aquino’s still-popular administration might use its last full annual budget to raise spending to boost economic activity and create more jobs.

“However, the lack of a clear candidate for 2016 elections could temper positive sentiments and increase political volatility,” the bank said.

Effects of political noise on the economy were in full view in 2014. Public spending fell sharply in the second half of the year following the Supreme Court’s July decision to nullify the administration’s Disbursement Acceleration Program (DAP), which previously gave the President the power to divert government savings to new projects.

The high tribunal considered this scheme as an encroachment of Congress’ “power of the purse.”

DAP ended in 2013, but spending still fell as authorities were less willing to spend cash that they had. Reconstruction efforts in Visayas following Supertyphoon “Yolanda” also bogged down due to inefficiencies.

As a result, economic growth in July to September slumped to 5.3 percent—the slowest since 2011—from 6.4 percent in the previous quarter.

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