IMF to check PHL economic health as it raises SE Asia growth outlook

By Maria Eloisa I. Calderon
Editor-at-Large

KUALA LUMPUR — A team from the International Monetary Fund (IMF) is visiting the Philippines this week for an annual review of the health of the Philippine economy, a senior IMF official said.

The Washington-based lender on Monday released an update to its semi-annual World Economic Outlook (WEO) report that showed it expects overall global growth at 3.5% this year and 3.6% in 2018 — both unchanged from April after dimmer forecasts for the United States and the United Kingdom chipped away at confidence for growth prospects in China, Japan and the euro area.

That report, however, traditionally dwells on numbers for the world’s largest economies, while offering growth projections for emerging markets and developing economies as a group.

It lumps the Philippines with four other Southeast Asian countries Indonesia, Malaysia, Thailand and Vietnam which, together, the IMF now predicts to expand by 5.1% this year, a step up from 5.0% it tipped in April. It kept its 2018 growth estimate for these five countries at 5.2%.

The detailed forecast for Philippine gross domestic product (GDP) growth, which the IMF in April put at 6.8% for 2017, should be announced in the next two weeks after the IMF team completes the Article IV consultations with Philippine central bank and finance officials. Philippine first-quarter growth was a weaker-than-expected 6.4%.

“The team is travelling to the Philippines right now so Article IV consultation will begin next week,” Ranil Salgado, assistant director at the IMF’s Asia and Pacific Department, told BusinessWorld in an interview in Kuala Lumpur.

“They will also update it [GDP forecasts] based on discussions with authorities as well and the central bank.”

The IMF made the update to its April outlook after first quarter results for China and emerging economies Brazil and Mexico, as well as in advanced economies Japan, Canada and in the euro area, turned out stronger than it previously thought.

It raised its 2017 GDP forecast for China to 6.7% from an initial 6.6%, and to 6.4% for next year from 6.2% before, on prospects that continued fiscal support will keep the economy’s momentum after a strong start to the year.

The IMF’s outlook on Japan has become more sanguine too at 1.3% this year from a previous 1.2% forecast, after “private consumption, investment, and exports supported first-quarter growth.”

Growth projections for euro area economies France, Italy, Germany and Spain as well as for Canada were also revised up, underpinned by buoyant domestic demand.

But the IMF cut its estimates for US growth to 2.1% for both this year and the next, from 2.3% and 2.5% previously, on “the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes.” It did the same for the UK, which it said will likely grow by 1.7% this year, softer than a two percent earlier forecast.

With the downgrade in growth forecasts for the big economies and the cuts elsewhere, it’s a wash overall.

“The unchanged global growth projections mask somewhat different contributions at the country level,” the IMF said.

Underlying the more upbeat outlook for the Philippines and its Southeast Asian neighbors are the rebound in exports, stronger factory output and lower oil.

“In terms of domestic demand, we’ve seen a number of countries follow the Philippine example and provide some fiscal stimulus thru public investments and also expanding thru social expenditures,” Mr. Salgado said.

The Philippines has been freed from IMF debt since 2006 and is now a creditor to the global firefighter. But Manila still has to go through the so-called annual surveillance that the Washington-based lender conducts among its 189 member-countries — indebted or not — offering policy recommendations but no longer prescriptions that were packaged before as part of loans for crisis-hit economies.

The IMF has for years been calling for an expansion of the Philippines’ tax revenue base, primarily through better tax administration, to finance public investment and allow more space for social spending.

While a tax hike on cars and oil could be warranted — something that the Duterte administration now wants Congress to pass — the IMF said the reforms should take into account the poor and fixing tax administration.

“In general, the goal here is as I said, first is to enhance the tax base. So part of it is removing the exemptions, making the tax system fairer,” Mr. Salgado said.

“At the same time, you need some revenue-enhancing measures so you need to go beyond eliminating exemptions and in some cases, actually raise revenues more directly. I think that’s part of it,” he pointed out.

“At the same time, to the extent that it could affect the poor parts of the population, you do need to have social expenditures, particularly targeted social expenditures to focus primarily on the poorer parts of the population.”

The IMF chopped its inflation bets for advanced economies to 1.9% from 2.0% for this year, and to 4.5% from 4.7% for emerging markets and developing economies, reflecting lower global oil prices and subdued wage pressures in rich nations.

“We’re seeing that inflation expectations have not fallen tremendously in most of Southeast Asian countries… So for us the Philippines, I don’t think that’s [subdued inflation] a big, significant an issue,” Mr. Salgado said.

“I think if anything going forward, we’d be concerned if inflation expectations will pick up given the strengthening economy.”

But with growth still buoyant and inflation tamed, the Philippines is enjoying “an excellent combination,” the IMF official added.