IMF tells PH: Invest more in fight vs pandemic

The government may need to invest more in efforts to beat the coronavirus pandemic to ensure the country’s return to sustainable economic growth this year and next, according to a visiting mission of the International Monetary Fund (IMF).

In a statement on Wednesday, officials of the 190-nation multilateral funding agency also predicted that Philippine gross domestic product would expand by 5.4 percent this year and 7 percent next year—more conservative than the government’s goal of 6-7 percent and 7-9 percent for 2021 and 2022, respectively.

“Timely implementation of fiscal support—with flexibility to address evolving priorities—is crucial for continued recovery,” said the statement released by the team led by mission chief Thomas Helbling.

The officials noted that the fiscal deficit targeted in the 2021 budget provided significant stimulus to economic activity, but added that given the imperative to beat the virus and the continued difficulties faced by vulnerable families and businesses, “more resources could be needed.”

“Such resources should aim to bolster the health-care system to accelerate vaccinations, strengthen capacity for testing, tracing, isolation and treatment, and support affected families and businesses,” they added. “A medium-term fiscal strategy should underpin the eventual rebuilding of fiscal space.”

To return the economy on an upward trajectory, however, IMF officials said the Duterte administration would have to remain focused on implementing structural reforms that were also key to attracting more capital.

“To rekindle investment and revert to its strong prepandemic growth rates, the Philippines needs to maintain the momentum of structural reforms,” they said, noting that important progress has been made on many fronts, such as tax reform, digital payments, cutting red tape and climate mitigation and adaptation.

“However, sustained efforts will be needed to reduce restrictions on foreign investments, fast-track the rollout of the national ID, scale up social protection, strengthen health care and education, and implement climate change commitments,” they added. “These reforms will help the Philippines build back better and position the country for a more equitable and greener future.”

As part of the periodic review process of its member countries, the IMF team conducted virtual discussions on the Philippine economy from May 21 to June 11, 2021. A positive assessment has traditionally been viewed by markets as a seal of good housekeeping for the Philippine government.

The officials noted that the government has deployed a comprehensive policy support package to address the sharp economic downturn following the strict containment measures imposed to slow the spread of the coronavirus and to reduce the pressure on the health-care system.

These measures helped mitigate the hardship suffered by affected families and businesses and helped safeguard macrofinancial stability.

But they also noted that “uncertainty around the pace of the economic recovery is high, and the balance of risks to economic activity is tilted toward the downside.”

“Supply constraints could lead to delays in vaccinations, which in turn would increase the risk of virus resurgence after the recent second wave and tightening quarantine measures,” they said, warning that setbacks could amplify the effect of external shocks, such as rising global interest rates and inflation, that would constrain the monetary policy response and raise financing costs for the public and private sector.

These risks could be balanced with a reinvigorated infrastructure push with greater private sector participation and a stronger global recovery could help accelerate growth.

“For the recovery to take hold, monetary policy should remain accommodative,” the IMF officials said. “While the recent spikes in inflation should be closely monitored, the present monetary policy setting is appropriate as the current inflation pressure appears to be temporary and is likely to taper off in the second half of the year.” INQ