The International Monetary Fund (IMF) scaled back its forecast expansion of the economy this year and next, but said the Philippines should still prove as one of the standout economies no matter the volatilities at home and abroad.
At the news briefing conducted at the close of its so-called Article IV consultations with the Philippines, the IMF said local output growth measured as the GDP was likely to hit 6.6 percent this year or lower than the earlier projected 6.8 percent expansion.
That same expansion will hit 6.8 percent next year, also slower than the earlier 6.9-percent projection.
IMF Mission Head Luis Breuer said in the global context of slow global growth recovery, the Philippines stands out as a place “that continues to do very well economically”, citing strong growth and low inflation.
An IMF Article IV visit is an annual “health check” on the economies of member-states around the world. Breuer and his team had been systematically evaluating Manila the past two weeks by meeting with government officials, private-sector representatives, bankers and businesspeople to get an accurate picture of the country’s health.
Breuer said the IMF is confident of the country’s macroeconomic underpinnings viewed against regional and global standards and from the point of view of both the private and public sectors.
Breuer said the less robust growth forecasts this year and next was based in part on lower-than-projected growth outcome in the first quarter.
“Overall, we are very optimistic about growth in the Philippines. It’s true, as you point out, that our growth projection was revised a little bit from 6.8 percent to 6.6 percent. The reason for that was basically math,” Breuer said.
“Growth in the first quarter was lower than anticipated and, as you know, growth is measured relative to the same period last year, when during electoral cycle there was higher spending which led to temporarily higher growth. When you combine these factors, growth in the first quarter was a bit slower than expected,” Breuer said.
To help preserve the country’s strong growth momentum, the IMF said the reform areas the government bared earlier should prove crucial to continued expansion. These include the tax- and budget-reform plans and adoption of the proposed Bangko Sentral ng Pilipinas (BSP) Charter changes.
“If we see a tax reform that generates around two percentage points [more revenues as percent] of GDP in all of its phases over the medium term, we would say that’s a very successful tax reform. We have to wait to see what happens in Senate,” Breuer said.
“…We believe [in] the BSP Charter and amendments that are in Congress…. We believe that these are important amendments, that if approved will serve Philippines well for many, many years. There’s a need to modernize the legal framework that guides the actions of the BSP both on the supervisory, the policeman of financial sector area and on the policeman against inflation. This new law or amendments to the law provide a number of tools that are very important for the BSP to catch up with the rapidly changing economy,” he added.
The IMF also believes that, while a higher interest-rate regime is inevitable, the BSP need not make rate adjustments for now.
“We think the monetary stance is appropriate today. But when we look at the world, we do see interest rates are going to increase, and this is most likely going to have an impact on the Philippines. We would expect higher interest rates in the Philippines down the road, in line with global tightening of financial conditions. But we don’t see the need to tighten the monetary-policy stance today,” Breuer said.
The Monetary Board will next meet on Thursday, its first with BSP chief Nestor A. Espenilla Jr. as chairman.