The International Monetary Fund has cut its growth forecast for the Philippines this year to 6.6 percent on the back of slower-than-expected expansion in the first quarter although the country is seen to remain among the region’s bright spots if economic reforms are sustained.
In a press briefing yesterday, Luis E. Breuer, head of the IMF’s 2017 Article IV Mission to the Philippines, said the downgraded gross domestic product (GDP) growth projection from 6.8 percent previously was due to the lower-than-anticipated expansion of 6.4 percent during the first three months.
“As you know, growth is measured relative to the same period last year when during the electoral cycle there was higher spending, which led to temporarily higher growth,” Breuer explained.
The government had blamed slower government spending, higher prices of consumer goods as well as the dissipated impact of election-related expenditures last year for the first-quarter performance.
The government targets 6.5-7.5 percent growth this year.
But Breuer noted that “in general, we see the economy growing close to potential, and that is very good.”
For the medium term, the IMF sees growth averaging 6.8 percent, “supported by robust domestic demand and recovery in exports,” the Washington-based multilateral lender said in a statement.
Economic managers had expected the GDP to grow by 7-8 percent yearly next year until 2022.
“Inflation is projected at the center of the target band in 2017-2018, reflecting stable commodity prices and a near-zero output gap. The current account balance is projected to turn negative from 2017 and gradually widen due to higher imports driven by investment, but the external sector remains strong and international reserves ample,” the IMF said.
As for risks, these were “tilted to the downside and stem mainly from external sources” such as spillovers from lower growth in China, US monetary policy tightening as well as rising concerns about globalization in some advanced economies, according to the IMF.
However, “the combination of rapid credit growth, buoyant private investment and fiscal expansion could lead to overheating” on top of other domestic risks, including natural disasters and security-related events.
“The Philippines stands out as a place that continues to do well economically—growth continues to be very strong, at the same time inflation is low,” Breuer said.
The IMF official said they supported the government’s plans to raise infrastructure and social spending while avoiding overheating as well as preserving investor confidence.
Also, Breuer said the Philippine government could protect the economic growth potential by pushing three key reform bills—the comprehensive tax reform program, the budget reform bill and the amendments to the Bangko Sentral ng Pilipinas charter.
“The approval of the first tax reform package could lead to higher infrastructure investment, which raises potential growth,” the IMF said.
As for the budget reform and rightsizing bills, the IMF said these would also help further improve spending efficiency and quality, helping to achieve the inclusive growth agenda.
Also, “there is a critical need to approve the amendment of the BSP law to strengthen the financial stability framework and enhance the monetary transmission,” the IMF added.
In light of the ongoing fighting between government forces and ISIS supporters in Marawi City, Breuer said that there was “no evidence that confidence or sentiment in the Philippines, which is very strong by regional and global standards as both the private and public sectors have very ambitious plans to expand, has been weakened because of any regional security events.”
“When we look at the numbers, including private [sector investment] and FDI (foreign direct investment), the numbers are quite buoyant. Investment is very dynamic,” Breuer added.