The Asian Development Bank raised this year's growth forecast for the Philippines to 6.2 percent on the back of growing consumption, surging investments and strong export rebound.
In its flagship publication Asian Development Outlook (ADO) released Tuesday, the ADB said the higher-than-expected 7.9 percent expansion in gross domestic product in the first half ensures the country will post a solid growth for the rest of the year.
The Manila-based lender earlier forecast Philippine GDP to grow 5 percent in 2010.
The ADB noted that steady inflow of remittances from overseas Filipino workers that boost domestic consumption, increased investments and nearly 40 percent increase in export growth supported the GDP in the first half.
The ADB also forecasts growth of 4.6 percent in 2011, unchanged from April's projection. According to Neeraj Jain, director of ADB 's Philippines Country Office, reduced policy stimulus, slower growth in world trade, and higher 2010 numbers will "temper the growth momentum in 2011."
The ADB expects Philippine inflation to average at 4.5 percent this year and 4.4 percent in 2011. A slower economic momentum and fiscal stimulus will offset rising global energy and commodity prices next year.
But Jain said the Philippine government has to increase its tax collections and improve the business climate to sustain growth over the long term.
According to the ADB report, the Philippine government needs to strengthen its tax administration given that President Benigno Aquino III has promised that he won't raise or issue new taxes.
"The country needs to increase its revenue collection in order to support social and development spending, which have lagged for many years," Jain said.
The ADB added that the government has to invest in infrastructure and improve governance to attract more investments, create jobs and cut the 30 percent poverty incidence in this developing Southeast Asian country.
"All growth usually translates to poverty reduction," Jain said. But the challenge is to make sure that such growth will benefit the poor.
The ADB said the downside risks to the Philippines' 2010-2011 growth forecast include uncertainty over the strength and pace of the global economic recovery and the La Nina-induced floods that can damage farm production.
Despite balance-of-payments surpluses and substantial foreign reserves, financial markets could also become unsettled if fiscal slippage continues, raising the country's risk premium, the ADB said./.