IMF upbeat on PH economy

The International Monetary Fund expects the Philippines to sustain robust economic growth this year and match the 6.8-percent expansion posted last year as long as it pursues tax reform and lifts the quota on imported rice.

“The economic outlook continues to be favorable, although subject to external headwinds. In 2017, growth is projected at 6.8 percent on continued strong domestic demand and a mild export recovery,” an IMF mission led by Luis E. Breuer said in a statement after a visit to Manila on Feb. 20 to 24.

Breuer noted that last year, the 6.8-percent gross domestic product (GDP) growth was “led by strong domestic demand that more than offset the drag from net exports,” such that the economy remained resilient to external shocks.

Also in 2016, “investment expanded rapidly reflecting higher public infrastructure spending and private construction,” Breuer noted.

For this year, Breuer said “inflation is expected to rise to 3.6 percent due to higher commodity prices, pass through from currency depreciation, and strong economic activity.”
The IMF’s inflation forecast is within the government’s 2 to 4 percent target range but higher than 2016’s full-year average of 1.8 percent.

“Higher infrastructure and social spending is expected to increase the budget deficit to 3 percent of GDP” in 2017, Breuer added. The Duterte administration’s wider budget deficit program was aimed at addressing the infrastructure gap.

Breuer said the Philippine government’s fiscal policy was “appropriately focused on the medium-term objectives of addressing the infrastructure gap and inequalities and should be supported by public financial management reforms.”

Hence, “passing the first package of the comprehensive tax reform proposal is critical to sustain the rise in expenditures targeted in the medium-term fiscal framework, which is anchored on a 3-percent-of-GDP deficit,” Breuer said.

As for monetary policy, it “remains supportive of growth while the introduction of the interest rate corridor has strengthened monetary transmission,” he said.
For Breuer, the Bangko Sentral ng Pilipinas “should remain vigilant to signs of overheating or an undue acceleration of credit growth” even as he noted that the financial sector “continues to remain sound,” citing a recent move of the BSP to reduce concentration risks in the banking industry by allowing the exemptions on the single borrower’s limit to lapse.