The Philippine economy is still projected to grow a tad below 7 percent this year, as bolstered by the country’s strong domestic demand and the recovery of its export numbers, the International Monetary Fund (IMF) said.
Following the release of its World Economic Outlook, IMF Resident Representative for the Philippines Shanaka Jayanath Peiris said they are retaining their 6.8-percent growth forecast for the Philippines this year.
For next year, Peiris said they see the Philippines clocking in a 6.9-percent GDP growth.
The IMF resident representative also said higher commodity prices will push up inflation to 3.6 percent in 2017, then slightly decelerate to 3.3 percent in 2018.
Despite the forecast rise in the average growth of prices of basic goods in the country, the IMF’s projected inflation path is still within the central bank’s target range of 2 percent to 4 percent.
“Public spending is expected to rise, as the fiscal-deficit target has been increased to 3 percent of GDP in 2017 and provide a stimulus to economic activity,” Peiris said.
“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,” he added.
The rosy picture expected by the IMF for the Philippine economy in 2017 mirrored its optimism on the global economy, as the IMF upped its growth forecast for the global economy to 3.5 percent in 2017, from the earlier 3.4 percent. It retained the 3.6-percent growth projection for 2018.
The IMF said the expected growth improvements for this year and the next are broadly based, although growth remains tepid in many advanced economies, while the export industry continues to struggle.
With regard to risks to the country’s growth, the IMF said potential spillovers from lower growth in China or higher global financial volatility will be manageable for the Philippines, owing largely to its economic fundamentals, ample policy space and limited trade and financial linkages with the Asian economic powerhouse.
“Nonetheless, the Philippines would be affected more strongly should growth for the region slow,” the IMF said.
Meanwhile, the impact of tighter US monetary policies on the Philippines, according to Peiris, would depend on their ability to drive stronger US growth.
“Protectionist policies in advanced economies would have an overall negative impact in Asia, including the Philippines, but the magnitude of impact and channels would depend on the specific policies that are still uncertain,” Peiris said.
The IMF also lauded the Philippines’s efforts to drive its high-growth numbers back to the masses. “Fiscal policy is correctly focused on more inclusive growth by increasing social and infrastructure expenditure, financed with additional borrowing and higher revenue,” the IMF said.
“A tax-reform proposal, which covers personal income tax, VAT [value-added tax] and excises, is expected to be approved by Congress later this year and will be critical to finance the additional spending and preserve the low-borrowing costs,” Peiris said.
“We also support the authorities’ initiatives to improve the Conditional Cash Transfer Program, raise investment in education and health, and increase agricultural productivity by removal of the quantitative restrictions on rice imports and promoting secure land titles in agriculture, which could be used as collateral for bank loans,” he added.
Image credits: Nana Buxani/Bloomberg