THE PHILIPPINE government should carefully balance the need to support the economy’s recovery, while maintaining price stability, the International Monetary Fund (IMF) said.
“While the recovery is expected to strengthen in 2022, the authorities will need to carefully balance the policy mix to provide adequate support to the recovery while ensuring price stability,” Cheng Hoon Lim, IMF mission chief for the Philippines, said in an e-mail last week.
The IMF last week raised its 2022 growth projection for the Philippines to 6.5% from the 6.3% forecast given in January. However, this is lower than the government’s 7-9% target for this year.
“Monetary policy can remain accommodative in the short term, provided inflation expectations remain well-anchored,” Ms. Lim said.
The Bangko Sentral ng Pilipinas (BDP) has kept policy rates at a record low to boost the economy’s recovery, but has signaled rate hike adjustments in the second half of 2022.
The Monetary Board now expects inflation to breach the target at 4.3% for 2022 from 3.7% previously, citing the surge in oil and commodity prices due to the Russia-Ukraine war.
At the same time, Ms. Lim said the government should also proceed with its fiscal consolidation plan, “while continuing to fund health-related programs and providing cash transfers or subsidies for the hardest-hit sectors.”
The government is currently working on a fiscal consolidation plan, after the budget deficit widened during the pandemic.
In 2021, the budget deficit reached P1.7 trillion, equivalent to 8.61% of gross domestic product (GDP). For this year, the government’s budget deficit cap is at P1.65 trillion, which is equivalent to 7.7% of GDP.
The Philippines ended 2021 with P11.73 trillion in outstanding debt, pushing the debt-to-GDP ratio to a 16-year high of 60.5%. This is higher than the 60% threshold considered manageable by multilateral lenders for developing economies.
The IMF in a blog dated April 20 said governments recovering from the pandemic are confronted with the need for agile fiscal policies to address the spike in food and fuel prices.
“Governments face difficult choices in this highly uncertain environment. They should focus on the most urgent spending needs and raise revenue to pay for them,” it said.
Ms. Lim said policy support should be focused on ensuring inclusive and sustainable recovery.
“The planned introduction of the national ID system and implementation of the financial inclusion initiative would complement the social assistance programs by facilitating the identification of eligible households and delivery of cash aid,” she said.
More than 60 million Filipinos have already completed the second step of the registration for the national ID as of March — which include the capturing of biometric information.
Ms. Lim also stressed the need for the government to continue investing in education and infrastructure.
“Progress in the digitalization of public services and improving digital and physical connectivity throughout the Philippines’ archipelago would be another important pillar to bolster growth prospects,” she said. — L.W.T.Noble