For the second time this year, multilateral lender International Monetary Fund (IMF) cut its growth projection for the Philippines to 6 percent from 6.2 percent mainly on the back of external challenges.
“The Philippine economy has performed remarkably well in the face of a weaker external environment and global financial turbulence in 2015. Despite a large drag from net exports, real GDP [gross domestic product] growth remained robust in 2015 at 5.8 percent, reflecting a strong pickup in private investment and public construction through the year,” the IMF noted in a statement yesterday, released following the mission led by Chikahisa Sumi on Feb. 11-17.
However, “real GDP growth is projected at 6 percent in 2016 and 6.2 percent in 2017, driven by continued strong domestic demand offsetting weak net exports,” Sumi said.
In its January 2016 World Economic Outlook report, the IMF slightly downgraded to 6.2 percent from 6.3 percent last October its growth forecast for the Philippines “to reflect the more challenging external environment.”
The IMF’s updated growth projection was also below the government target of 6.8-7.8 percent.
“The economic outlook is favorable but subject to increased downside risks, including lower growth in China and the region, higher global financial volatility and capital outflows and weather-related disruptions,” Sumi said.
He nonetheless pointed out that “the Philippines’ capacity to respond if these risks materialize is substantial given its ample reserves and policy space, both monetary and fiscal,” citing that even as credit growth slowed to 13.1 percent last year, it remained “supportive of financial stability and sustainable growth as private credit to construction and real estate has moderated.”
Moving forward, the next administration should continue to increase tax revenues, among other structural reforms, to sustain economic expansion and further slash poverty, according to the IMF.
“Over the medium term, a continuation of prudent macroeconomic policies and good governance would be critical to sustain investor confidence and the growth momentum. To support growth, structural reforms will also be needed to address structural issues centering around the low rate of national investment, opening up the economy to greater competition and foreign investment, and high rates of poverty and inequality,” Sumi said.
“Going forward, a continued focus on raising tax revenue would be important to address the large infrastructure and social needs,” he added.