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By Melissa Luz T. Lopez
Senior Reporter

IMF sees sustained Philippine growth

Posted on April 19, 2017

THE INTERNATIONAL Monetary Fund (IMF) expects the Philippines to sustain its growth momentum up to at least 2018, banking on increased fiscal spending and a recovery of global demand, as well as a reform agenda seen broadly on track to boost the local economy.

A recovery of merchandise export markets is expected to contribute to the Philippines’ overall economic growth momentum. -- BLOOMBERG
The multilateral lender kept its 6.8% forecast for gross domestic product (GDP) growth this year, and announced an even higher estimate of 6.9% for 2018 in the April edition of the World Economic Outlook report published yesterday.

If realized, these projections will roughly sustain the upwardly revised actual 6.9% expansion recorded in 2016, supported by “strong domestic demand and a recovery in exports,” IMF country representative Shanaka Jayanath Peiris said.

“Public spending is expected to rise as the fiscal deficit target has been increased to three percent of GDP in 2017 and provide a stimulus to economic activity,” Mr. Peiris said in an e-mailed reply to questions, referring to the government’s ambitious spending plans particularly on infrastructure.

The IMF’s estimate compares with the World Bank’s 6.9% projection for GDP growth this year, and is higher than the 6.4% given by the Asian Development Bank.

It also falls within the government’s 6.5-7.5% growth goal for 2017, and will keep the Philippines in the ranks of Asia’s fastest-growing economies.

Socioeconomic Planning Secretary Ernesto M. Pernia sees growth starting this year on firm ground by 6.5-7% in the first quarter. The government will report that data on May 18.

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Bank economists have also said that growth will likely remain above six percent this year, citing strong trade data as the year opened.

IMF said the Philippines will likely get a boost from improving global prospects, as it now expects world output to rise faster by 3.5% this year, coming from a 3.1% climb in 2016. Next year, global growth is seen picking up by 3.6%.

Merchandise exports rebounded to a 17.4% growth in the first two months of the year, recovering from a 4.2% decline seen in the comparable year-ago period, based on Philippine Statistics Authority data. This came alongside a sustained rise in imports that averaged 15.8% in the same period, faster than the 5.8% growth seen a year prior.

The IMF sees the country’s current account reversing to a slim deficit over the coming years from a narrow surplus equivalent to 0.2% of GDP in 2016.

At the same time, the country remains armed with ample foreign currency buffers versus shocks.

“The external position of the Philippines will continue to be comfortable with ample international reserves and the lower current account surplus related to higher capital goods imports and investment,” Mr. Peiris said.

Gross international reserves totalled $80.873 billion as of end-March, enough to pay 8.9 months’ worth of import duties which is well above the three-month global standard.

The IMF expects the current account, which measures money flows from goods and services, to log a deficit at 0.1% of GDP this year, widening to 0.3% in 2018.

Despite the strong economic activity, price increases of consumer goods should remain manageable, the IMF said. The multilateral lender expects inflation to settle at 3.6% this year and 3.3% in 2018, well within the central bank’s 2-4% target band although higher than the 1.8% average in 2016.

Global developments are likely to pose minimal risk to the Philippines’ growth story, the IMF added, even as it noted that reforms planned by the Duterte administration remain crucial in fostering resilience.

“Spillovers from lower growth in China or higher global financial volatility should be manageable for the Philippines due to its strong economic fundamentals, ample policy space and limited trade and financial linkages with China. Nonetheless, the Philippines would be affected more strongly should growth for the region slow,” Mr. Peiris added.

The IMF official also pointed out that the United States’ prospective protectionist policies will have an “overall negative impact” on Asian economies.

Reforms planned by the Philippine government -- particularly tax reform -- will be crucial to sustaining the growth momentum and making sure it lifts more Filipinos out of poverty.

“Fiscal policy is correctly focused on more inclusive growth by increasing social and infrastructure expenditure, financed with additional borrowing and higher revenue.”

The IMF has thrown its support behind the tax reform plan, which will be “critical to finance the additional spending” and help keep borrowing costs down.

The first of four packages of the Finance department’s tax reform plan awaits committee-level approval in the House of Representatives, which expects to give both that and plenary fiat next month, when Congress emerges from a six-week break.

Higher funding for education, health and poverty reduction should also help make economic growth become more inclusive, the IMF said.

The end in July of quantitative restrictions on rice imports is also expected to boost agricultural production, alongside the use of farmlands as collateral for bank loans, the global lender said.

Agriculture has historically contributed a tenth to GDP but has accounted for more than a fourth of jobs.

The government targets economic growth to average 7-8% by 2022, slash unemployment rate to 3-5% by then from 5.5% last year and trim poverty rate to 14% from 21.6% in 2015.