The International Monetary Fund (IMF), one of the most conservative institutions there is and always very hard to please, scaled up its growth forecast for the Philippines to 6.7 percent in terms of local output, or the gross domestic product (GDP), this year.
The accelerated growth path seen for the $272-billion economy this year came at a time when economies around Asia were forecast to slow down, as consequence of more moderate-than-expected global demand and a result of a weeklong visit by a team of IMF experts to the Philippines.
In the wake of that visit, growth was seen rising moderately as a result of lower commodity prices, accelerated public spending and export growth, as well as continued and robust private consumption activities. Nevertheless, the scaled-up forecast growth this year compares poorly against official growth target averaging 7 percent to 8 percent for 2015. Based on data from the Department of Finance, the IMF always projects growth 0.5 percent lower than actual growth performance the past 20 years.
The IMF also projected that inflation were to average at the low end of the BSP’s 2-percent to 4-percent scaled-back target for the year to reflect lower commodity prices seen down the line. Year-to-date inflation averaged 2.4 percent based on BSP data.
The decline in oil prices and inflows from business-process outsourcing, tourism and remittances were, likewise, seen to boost the country’s current-account surplus, a key economic yardstick that has made the Philippines a net lender to the rest of the world.
The Cabinet-level Development Budget Coordination Committee earlier projected a current-account surplus averaging more or less 2 percent of GDP, or $6.8 billion, this year.
The visiting IMF team took note of the country’s strong performance in 2014, as well as its downtrending unemployment rate during the period. Still, the incidence of poverty in the country, an indication of the magnitude of policy and reform programs that must be pursued down the line to achieve a more equitable society, “remained a challenge,” it said.
The IMF also cited so-called risks to the 2015 growth outlook coming from both external and domestic sources. In particular, the IMF warned of disruptive asset-price shifts in financial markets cropping up as a result of divergent monetary policies in the advanced economies even as the visiting experts said the Philippines’s strong fundamentals provide a cushion. “External demand could be weaker if risks of deflation and lower potential growth in advanced economies and key emerging markets were to materialize,” the IMF also said.
More recent preemptive BSP adjustments to arrest inflationary pressures in 2014 impressed the IMF, saying these resulted to more moderate liquidity and credit growth that reduced financial-stability risks.
“The BSP’s generally proactive approach to oversight of the financial sector, particularly real-estate exposures, provides additional support in this regard,” the IMF said.
The IMF also looks to the government to pick up its budget execution this year and next to achieve a deficit equal to 2 percent of GDP under the program.
“Over the medium term, structural policy issues center around increasing investment, particularly in infrastructure and human capital. In this regard, continued efforts at enhancing revenue mobilization will be critical to address the large spending needs, including enacting measures to offset any revenue- eroding policy change and preferably through a comprehensive tax reform,” the IMF said. Another team of experts is set to visit Manila in May this year under the terms of the country’s Article IV covenant with the IMF.