Shanaka Jayanath Peiris. PHOTO from www.imf.org
The International Monetary Fund (IMF) has slashed its growth forecast for the Philippines, citing global risks, as well as the slowdown in state spending that may extend the country’s first quarter slump all the way to June.
Compared to the rest of Southeast Asia, the Philippines is still expected to be an outperformer, although the multilateral lender’s new projection remained contingent on several moving parts that could bring growth down.
Shanaka Jayanath Peiris, the fund’s resident representative in Manila, cited the government’s slower spending in the second quarter of the year, high commodity prices, the country’s thin power supply and the fate of the state’s flagship infrastructure program dubbed the public-private partnership (PPP).
“It’s hard to predict all those things,” Peiris told reporters in his office Friday.
The Philippine economy is now expected to grow by 6.2 percent in 2014, slower than the IMF’s previous forecast of 6.5 percent, which was announced in April. The revised projection also falls short of the state’s target of 6.5 to 7.5 percent.
Next year’s projection was kept at 6.5 percent, although this too is outside the government’s target range of 7 to 8 percent.
Revised projections followed the release of the IMF’s updated World Economic Outlook (WEO), which showed the global economy growing at a slower 3.4 percent (versus the previous forecast of a 3.7-percent expansion). The story was the same for the five major Southeast Asian economies, collectively known as the Asean 5. The region is now seen expanding by 4.6 percent, slower than the previous 5-percent forecast.
Apart from the risks cited in the WEO update, namely geopolitical risks and volatile financial markets, the Philippines would struggle as a result of its disappointing first-quarter expansion. The Philippine economy grew by 5.7 percent in January to March, slower than the October-to-December figure of 6.3 percent and 2013’s 7.2 percent.
The country’s prospects for the year, Peiris said, would be contingent on the fate of the government’s reconstruction program, which should hit full speed by the second half of 2014.
Dips in state spending in April and May would also have to be reversed if the current projections are to be met. “We’re assuming that spending will still go as planned,” Peiris said.
At the end of the first five months of the year, the government posted a rare budget surplus of P8.5 billion, despite the need to increase spending for reconstruction efforts in the Visayas.
May marked the second consecutive month the government posted a surplus—meaning it made more money than it spent. Revenue collections in May were up 12 percent, while disbursements dropped 4 percent.
The dip in spending came despite a 41-percent increase in interest payments for government obligations, implying that the level of disbursements was held back by the slow implementation of projects.
For the whole year, the government expects its budget deficit to reach P266 billion, or the equivalent of 2 percent of gross domestic product.