Political uncertainties coupled with rising global energy prices, and lower growth in farm output, due to El Niño, have contributed to the slowing down of economic growth.
Acting World Bank country director, Chris Hoban, said, "Some lessons can be derived from the decisive policy actions in Indonesia."
A sustained implementation of recently adopted fiscal reforms would restore the financial health of the state and can help the country catch up with its neighbors in the region.
Stronger public finances would allow for more investments in infrastructure and education to make the country more competitive.
"The reforms also include improvements in the efficiency and transparency of public expenditures, so that more Filipinos, especially the poor, would benefit from the increase in additional revenues."
The resiliency of the economy was aided by a surge in worker remittances, and a strong rebound to 5 percent growth in agriculture in the third quarter.
Foreign direct and portfolio investment have increased significantly relative to 2003-04, and gross reserves have risen to record highs in recent months.
The public sector deficit has been reduced, and following uncertainty over the implementation of the expanded value-added tax (EVAT), the Supreme Court’s rejection in October of all challenges to the law has improved the prospect of a more robust tax effort in 2006.
On a more sobering note, the WB report notes that avian flu is now endemic in the poultry flocks of many countries in the region and indeed has spread to Europe and central Asia.
"While the costs of dealing with this have so far been limited to around 0.1 percent of GDP, from culling birds and implementation of better animal health surveillance systems, the potential impact of a serious pandemic is of grave concern," said Milan Brahmbhatt, lead economist and main author of the report.
"Dealing with the influenza threat requires top political priority in an approach that brings together agriculture, animal health, human health, and finance, along with the best technical help from international agencies who are mobilizing to support country initiatives," Brahmbhatt added.
The report also discusses the potential benefits of the Doha Development Round.
East Asia is likely to benefit more from global trade liberalization than any other region because of its open markets and the role trade already plays in driving growth.
The Philippines can gain from the success of the Doha trade talks in at least two areas — agricultural trade and services.
