MANILA, Philippines—The International Monetary Fund has upgraded its growth forecast for the Philippines for 2012 and 2013, saying the country exhibited an ability that was better than initially expected to weather the adverse impact of a weak global economy.
For this year, the projected growth in the country’s gross domestic product (GDP) was raised to 4.8 percent from the 4.2 percent made in April. For 2013, the forecast was revised to 4.9 percent from 4.7 percent. The growth projection of the IMF for this year is faster than the 3.9 percent recorded last year. It is, however, short of the government’s own target of 5 to 6 percent.
“The Philippine economy has sustained its solid momentum. Macroeconomic conditions remain generally sound and the authorities’ policy management is supporting confidence,” the IMF said in a statement released yesterday.
The IMF cited the better-than-expected growth of the Philippines in the first quarter at 6.4 percent, which was the fastest in Asia during the period after China’s 8.1 percent.
It also noted the manageable inflation environment in the Philippines, which it said was being aided by appropriate policies on liquidity management. The Bangko Sentral ng Pilipinas has set a goal of limiting the increase in consumer prices to an average 3 to 5 percent this year. In the first half, the National Statistics Office reported that inflation averaged only 3 percent.
The BSP said that based on its latest estimate, actual inflation for the full year would settle at or be close to the lower end of the target range.
The IMF also said the country was expected to continue having sufficient foreign exchange liquidity to meet external requirements such as import payments and settlement of debts to foreign creditors. The country’s gross international reserves stand at about $76 billion. This is enough to cover for about 11 months’ worth of imports and about six times the country’s foreign currency-denominated debts maturing within a year.
“In case tail risks from the global economy materialize, the Philippines has the policy space to support growth if needed,” the IMF said. This is partly due to the fact that the 4-percent key policy rate of the BSP, although at a historic low, was still high compared with those imposed by central banks in advanced economies. The policy rate in the United States, for instance, remains at near zero.
With room to cut the policy rate, which influences commercial interest rates, the Philippines is said to have the capability to stimulate growth in case global economic conditions worsen. Lower interest rates boost demand for loans, which support consumption and investments.
The view that the Philippines has room to support growth is also anchored on the government’s declining debt burden. Since its debts are manageable, economists said the Philippine government could afford to increase public spending to stimulate the economy once the ill-effects of a weak external environment worsen.