MANILA, Philippines - The Philippines should pursue greater investments in productivity-enhancing infrastructure and further economic integration with its trading partners amid a global slowdown, the World Bank said.
In its report "Capturing New Sources of Growth", the World Bank said growth in the East Asia and Pacific region is strong but slowing, which is why countries should lessen their reliance on exports and look for new sources of growth.
This year, the World Bank sees the East Asia and Pacific region growing by 7.6%, down from its previous estimate of 7.8% in its report last November, as China's economy is expected to slow down. The economic growth forecast for China this year was cut to 8.2% from 8.4%.
For the Philippines, the World Bank maintained its growth forecast at 4.2% this year. For 2013, it predicts the Philippines will grow by 5%, up from its 4.8% forecast last November.
"Should the global slowdown persist, (Philippine) growth of around 4.2% and 5.0% in 2012 and 2013, respectively, will hinge on robust domestic demand, investment, and government spending," the World Bank said, in its biannual East Asia and Pacific economic update.
Last year, the Philippine economy grew slower than expected at 3.7% in 2011, held back by weak public spending and external demand.
With weak demand, countries such as the Philippines should rely less on exports and more on domestic demand to maintain high growth.
"With a changing financial sector in the aftermath of the financial crisis, new ways to finance higher levels of infrastructure investment need to be developed. Governments would need to focus on accelerating the preparation of infrastructure projects," said Bryce Quillin, World Bank economist and lead author of the report.
The report noted that the Philippines needs to address the key impediments to accelerating inclusive growth through strengthening public financial management, improving tax revenues efficiently and equitably, ramping up investments in infrastructure, and enhancing competitiveness to attract more investments.
In particular, the passage of bills such as reforms on the tobacco and alcohol excise tax and fiscal incentives would provide the Philippines with more tax revenues.
"Successful implementation of these key reforms would allow the Philippines to take advantage of new opportunities arising from the global economic rebalancing, given rising production costs in the rest of the region," said World Bank lead economist for the Philippines Rogier van den Brink.
More investment will enhance productivity and drive growth in the East Asia and Pacific region in the medium-term.
The World Bank report suggested that countries improve regional migration policies to enhance gains from regional economic integration.