PHL has policy space to guard vs economic risks — IMF

THE PHILIPPINES has space to adopt expansionary fiscal and monetary policy if risks to economic growth emerge, the International Monetary Fund (IMF) said, even as it expects expansion to improve this year amid downside risks.

“The Philippines has policy space and could adopt a more expansionary macroeconomic policy

stance should downside risks materialize. Under these adverse risk scenarios, fiscal stimulus should be prioritized toward public capital and social spending programs,” the IMF said in its 2019 Article IV Consultation and Staff Report released on Feb. 6.

“The Bangko Sentral ng Pilipinas (BSP) also has substantial space to lower its policy rate if downside surprises materialize,” it added.

The annual health check is part of the multilateral lender’s regular surveillance work among member-economies, as required under Article IV of the IMF articles of agreement.

Representatives monitor economic and financial developments and discuss fiscal and monetary responses with government and central bank officials in countries they visit.

The IMF earlier maintained its growth forecast for the country at 6.3% thus year, which is faster compared to the actual 5.9% gross domestic product (GDP) growth print in 2019.

This forecast, however, is below the government’s 6.5-7.5% growth target.

Meanwhile, on Thursday, the BSP’s Monetary Board reduced key policy rates by 25 basis points (bp) in a preemptive move ahead of emerging risks. This brought the reverse repurchase rate, as well as the rate of the overnight lending and deposit facilities, to 3.75%, 4.25%, and 3.25%, respectively.

“The outlook is positive. GDP growth is projected to…rise to 6.3% in 2020, underpinned by government spending acceleration and the recent monetary policy easing,” it said.

It added that it expects inflation to end the year at 3%, “accompanied by a slight

widening of the current account deficit to 2.3% of GDP in 2020 as investment picks up.”

The multilateral lender said there are downside risks to growth amid ongoing trade tensions, global financial conditions, and natural disasters.

“The structural reform momentum and infrastructure push remain strong. Several landmark

reform bills have been signed into law recently, including rice tariffication, a national digital ID, the ease of doing business, and BSP charter amendments,” it said.

“The government has also revised the list of priority flagship infrastructure projects based on feasibility and cost-benefit considerations, with the objective of raising infrastructure investment to over 6% of GDP by 2022,” it added.

The IMF said current macroeconomic policies are “attuned to the outlook.”

“The moderate fiscal stimulus planned for 2020 and the monetary policy easing since mid-2019 are consistent with the economy moving back to growing at capacity and achieving the inflation objectives in the baseline outlook,” the lender said.

However, it noted that macroprudential policy response should be “proactive” amid financial risks like high credit growth in the real estate sector, volatile inflows, and other external shocks.

Meanwhile, it said closing the infrastructure gap in the Philippines would “require further reform efforts.”

“Enhancing public investment management, including by promoting greater competition and allowing easier public access to information in the procurement process, would enable the planned increase in the infrastructure investment enveloped and contribute to its timely and cost-effective implementation, and also reduce incidence of corruption,” the multilateral lender said.

It added that planned changes to tax incentives would help encourage investments, and, in turn, boost job creation.

“Bolder” implementation efforts will help achieve results from various reforms, the IMF said.

“Strengthening the capacity of the public administration, advancing with the ease of doing reforms, and continuing with the infrastructure push will be central in this respect,” it said.

It added that lifting restrictions on foreign direct investments, improving poverty reduction efforts, easing the bank secrecy law, and investing more in climate change adaptation and mitigation, among others, will also boost the government’s reform agenda. — LWTN