BSP says 7% to 8% growth in 2011 possible

Reuters

Posted at Jul 04 2011 11:42 AM | Updated as of Jul 04 2011 09:23 PM

MANILA, Philippines - The Philippines can grow 7% to 8% this year, backed by higher consumer and state spending in the second half, and the economy's strength and improving fiscal position, a senior central bank official said.

The government has set a goal of 7% to 8% growth this year after a 7.6% expansion last year, although its budget projections assume slower growth.

"Seven to 8% is possible, but the challenge is for the government and the private sector to leverage on market confidence, as shown by the credit rating upgrades and the opportunities available in the Philippines," Diwa Guinigundo, deputy governor of the Bangko Sentral ng Pilipinas (BSP), told reporters over the weekend.

"Given the upgrades that we received, as well as the upgrades in terms of the outlook, it looks like we are in the right direction," Guinigundo said.

Last month, Fitch Rating upgraded its foreign currency sovereign rating to one notch below investment grade, putting the Philippines on par with Indonesia. That came a week after Moody's Investor Services raised its rating on the Southeast Asian country to BB, or two rungs below investment grade, the same as Standard & Poor's.

Guinigundo said the central bank has done its own study on the country's credit ratings last year which showed the Philippines were two to three notches underrated.

The government has said it expects to accelerate spending on infrastructure and social services in the second half, which, Guinigundo said, was important for more investment to come in, particularly in public-private partnership deals on major road, airport, and rail projects.

He said sustained strength in remittances from overseas Filipinos, rising revenues in the business process outsourcing sector, and continued inflow of portfolio funds created a pool of funds that needed to be channeled to productive uses.

"There is still a gap between the flow of capital to the Philippines and the rate that we are able to turn around and make use of the domestic liquidity that they create," he said.

That meant the central bank had to manage the impact on the exchange rate to maintain business confidence on the country's competitiveness.

"In effect, that will manifest in the exchange rate so the exchange rate will appreciate and unless the BSP participates in the market and tries to moderate and smoothen the volatility, then people will think that we may be losing competitiveness," Guinigundo said.