PHILIPPINES: Bolstering Resilience Against Climate Change Key to Sustaining Inclusive Growth

MANILA  – The Philippines needs to intensify steps to bolster community resilience against the effects of climate change and extreme weather to minimize economic disruption and sustain inclusive growth, the World Bank’s Philippines Economic Update (PEU), released today, says.

In addition, the government needs to improve the efficiency, transparency, and inclusive use of public resources in climate adaptation, mitigation, response, and rehabilitation, the report says.

“The current El Niño phenomenon exemplifies the severe disruptions that extreme weather events, intensified by climate change, can cause,” said World Bank Country Director for Brunei, Malaysia, the Philippines, and Thailand Ndiamé Diop. “These disruptions include impacts on educational services, reductions in farm yields, and constraints on water and electricity supplies. Proactive measures to bolster community resilience against such climatic challenges are crucial and can significantly mitigate their adverse effects on the country’s growth outlook.”

The Philippine economy is forecast to accelerate to 5.8% growth in 2024 from 5.5% last year and to 5.9% in 2025. Growth is expected to be driven by strong household consumption, sustained strength in the services sector, and improved trade stemming from a rebound in global demand for goods and the continued recovery of services exports such as tourism.

The growth forecast is based on the expectation that inflation will ease, thus strengthening household purchasing power. Growth is expected to benefit from the government’s commitment to shore up public investment, with public investment plans averaging 5.7% of GDP from 2024 to 2026, including 124 new flagship infrastructure projects.

However, higher than expected inflation, extreme weather and climate change, global geopolitical tensions, tighter than expected financial conditions, and the possibility of a sharper slowdown in China pose risks to the growth outlook. A prolonged El Niño event, and possibly a La Niña, could strain the domestic food supply and trigger an increase in inflation.

“To manage inflation, the continued implementation of non-monetary strategies is essential, including efforts to optimize supply and demand management and to secure timely and adequate imports of staple food items,” said World Bank Senior Economist Ralph Van Doorn. “The government needs to continue providing social assistance to vulnerable groups who are disproportionately affected by high food inflation.”

In September 2023, the government launched the El Niño National Action Plan focusing on building resilience in water, agriculture, electricity, health, and public safety. To effectively manage the impacts of El Niño, a climate pattern produced by warming oceans, the government has implemented strategic measures, including financial assistance to rice farmers, fuel subsidies for farmers and fishers, and allocations for insurance claims and credit assistance for affected farmers and fishers.

The report also emphasizes the importance of enhancing revenue collection to sustainably finance the country’s development priorities. Achieving the Philippines’ fiscal targets by 2028 and sustainably financing the government’s development priorities will rely on more robust tax revenues.

Additional revenue efforts could focus on broadening the tax base, rationalizing tax incentives, strengthening tax administration, and improving collection efficiency. Fiscal consolidation could help preserve confidence in the economy, leading to an increase in private investment and productivity, and would lead to sustainable increases in public investment in infrastructure, health, and education.