Philippine Economic Update, January 2015 : Making Growth Work for the Poor

In the third quarter of 2014 (Q3), the
Philippine economy expanded by 5.3 percent its slowest pace
in 11 quarters. Growth slowed down due to the contraction of
government spending on the demand side and agricultural
production on the supply side. The services sector the main
engine of growth also slowed to its lowest level in 12
quarters. For Q3 2014 and for the first 3 quarters of 2014,
Philippine growth is about average when compared to the
major economies in the East Asia region. Capital outflows
resulted in a full-year balance of payments deficit of about
USD 3.4 billion, the first in a decade. However, the current
account remains in strong surplus, supported by robust
remittances, while international reserves continue to be at
comfortable levels at more than 10 months of imports.
Inflation started to moderate, with positive impact on both
households and businesses while government spending
contracted significantly in Q3 and constituted a further
drag on growth. Sustaining government spending in the
near-term will require significant improvements in budget
planning and execution as the current 28-year old system,
already at capacity, is hard pressed to support higher
spending. Going forward, the Philippines needs to accelerate
reforms that can translate higher growth into more inclusive
growth the type that creates more and better jobs so that
poverty can be reduced massively and prosperity shared by
more people. Overall, the country has an investment gap
(both physical and human capital) of around 6.8 percent of
GDP as of 2014. The document outlines this investment gap.