Service sector reforms urged to spur PH growth
Credit to Author: The Manila Times| Date: Mon, 28 Jan 2019 16:25:40 +0000
The Philippines should work on opening the service sector if it wants to spur growth, a World Bank economist said on Monday.
Andrew Mason, the multilateral lender’s acting chief economist for East Asia and the Pacific, noted that countries in the region were opening up in terms of tariffs but lagging with respect to liberalizing services.
“This is particularly important for the Philippines, because I think the future of Philippines, growth is going to be in high-value services. So service sector reform in this regard is important,” he told reporters.
“It has something to do with regulations on foreign direct investment … the share of foreign ownership in many sectors in the Philippine economy. That is the type of restriction that is counterproductive from an economic perspective,” he added.
Noting that the Philippines had benefited from the business process outsourcing (BPO) industry, Mason said the economy could gain a lot more if other sectors were liberalized.
“In the Philippines, of course, what’s famous are the BPOs. But services can be all kinds of things. It can be media, finance, tourism, so there is a whole world of possibilities beyond BPOs where the Philippines can grow if they open up and strengthen the regulatory framework for operations,” he said.
The law, among others, prohibits foreigners from owning mass media companies and limits their stake in public utilities to 40 percent.
Executive Order 65, signed by President Rodrigo Duterte last October, updated the Foreign Investment Negative List (FINL) by fully opening up a number of sectors.
Up to 100 percent foreign participation has been allowed for the following:
• internet businesses, which have been excluded from the category of mass media;
• teaching at higher education levels, provided the subject being taught is not a professional subject (included in a government board or bar examination);
• training centers engaged in short-term high-level skills development that do not form part of the formal education system;
• insurance adjustment companies, lending companies, financing companies and investment houses; and
• wellness centers.
Foreign ownership in two other sectors was also increased to up to 40 percent:
• contracts for construction and repair of locally funded public works (except those that are foreign-funded or -assisted and required to undergo international competitive auction), which previously had 25% foreign participation cap; and
• private radio communication networks, (20% previously).
Aside from services sector liberalization, Mason said that cutting bureaucratic red tape would also spur growth,
“In a lot of countries in East Asia there is a lot of bureaucratic discretion to issuing licenses to entities especially foreign entities that are interested in being involved in the services sector,” he said.
The World Bank expects the Philippine economy to grow by 6.5 percent this year, picking up from 6.2 percent last year but below the government’s 7.0-8.0 percent target.
In a related development, a senior Bangko Sentral ng Pilipinas (BSP) official expressed optimism that factors such as the updated FINL, lower inflation, and strong government and consumer spending would help boost.
“We are confident that in 2019, with inflation down, sustained govt spending, [and] with consumption expenditure being resilient and robust we should see more investments coming in,” central bank Deputy Governor Diwa Guinigundo said in an interview last week.
At the same time, the negative list of the government has been streamlined and that will provide a boost to foreign and domestic investments,” he also said.
Based on the Bangko Sentral’s latest forecasts, inflation will return to the 2.0-4.0 percent target this year — averaging 3.1 percent — and moderate further to 3.0 percent in 2020 after hitting 5.2 percent in 2018.
“Now that inflation is down, we should be able to see more significant improvements in consumption expenditure,” Guinigundo said.
Household consumption growth accelerated to 5.4 percent in the fourth quarter of 2018 after slowing to 5.2 percent in the third quarter, when inflation peaked at 6.7 percent.
“Government spending I think is non-negotiable in the sense that the government is serious in terms of undertaking higher spending on infrastructure,” the BSP official added.
FROM REPORTS BY ANNA LEAH E. GONZALES AND MAYVELIN U. CARABALLO
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