Philippines Cuts Growth Forecast, Plans More Spending

By Karl Lester M. Yap

Oct. 2 (Bloomberg) -- The Philippine government cut its growth forecasts a second time this week, saying exports and remittances from overseas workers will falter amid a U.S. economic slowdown.

The economy may expand 4.4 percent to 4.9 percent this year and 4.1 percent to 5.1 percent in 2009, Economic Planning Secretary Ralph Recto said in Manila today. He said Sept. 30 growth would be 4.5 percent to 5 percent in 2008, and 4.5 percent to 5.5 percent next year.

Finance Secretary Gary Teves said on Sept. 30 that growth may slow to as little as 3.8 percent under a worst-case scenario, signaling uncertainty about the extent of the slowdown as the U.S. financial crisis worsens. That may prompt Philippine policy makers to avoid further interest-rate increases after raising borrowing costs in the past three meetings.

``There has been writing on the wall for quite a long time now,'' said Vishnu Varathan, an economist at Forecast Singapore Pte. ``The risks are still tilted toward more softness. There is some consensus among policy makers that they should address growth first.''

The government maintains worst-, middle- and best-case outlooks for the economy at any given time, and it usually provides a forecast growth range based on the middle scenario.

The Philippines has cut its growth targets four times this year as a credit-market crisis hurts demand for made-in-Asia Intel Corp. computer chips and other goods. Two out of three economists surveyed by Bloomberg News today expect the central bank to leave its benchmark interest rate at 6 percent on Oct. 6.

Easing Rates

``There's pressure for easing interest rates,'' Recto told reporters in Manila today. ``Inflation has peaked.''

Philippine consumer prices probably climbed between 11.8 percent and 12.7 percent from a year earlier after rising 12.5 percent in August, central bank Governor Amando Tetangco said this week.

The government plans to boost infrastructure and agriculture spending to spur growth, Teves said today. The budget deficit may be as much as 100 billion pesos ($2.1 billion) this year, a third higher than the original forecast of 75 billion pesos, Teves said on Sept. 30.

``They recognize they have to ramp up spending to buffer the economy,'' Varathan said. ``The need to boost government spending is quite broad-based in Asia.''

President Gloria Arroyo in May pledged to boost investment and lift spending on rice and other subsidies to help Filipinos cope with soaring prices, abandoning her plan to balance the budget this year.

Asset Sales

The Philippine government may sell its stakes in Petron Corp., the nation's largest refiner, and PNOC Exploration Corp., an oil and gas explorer, for 41 billion pesos to help fund its spending plans, Teves said today. He is also asking Congress to reduce company tax breaks by 10 billion pesos and raise excise taxes by 12 billion to 25 billion pesos.

The government still plans to balance its budget by 2010, Budget Secretary Rolando Andaya said today.

Growth in the $144 billion Southeast Asian economy slowed to 4.6 percent in the second quarter, the weakest pace in three years. It expanded 7.2 percent in 2007.

To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net