THE International Monetary Fund (IMF) on Wednesday affirmed the Philippine economy’s position of strength in the coming years, but warned that looming near-term risks must be addressed to support long-term growth.
Following the IMF’s 2018 Article IV Mission—or the IMF’s annual health check of economies across the globe—IMF staff team head Luis Breuer said the global monetary authority is retaining its 6.7-percent growth outlook for the Philippines for this year.
While this projection falls below the government’s ambitious 7 percent-to-8 percent target range, Breuer said their projection is an indication that the country continues to grow strongly and medium-term outlook remains favorable.
“The Philippine economy is performing well. Real GDP [gross domestic product] grew 6.7 percent in 2017 and the team projects that this rate will be sustained in 2018 and 2019, underpinned by strong consumption and investment, including public investment,” Breuer said.
Breuer’s team visited Manila and Bohol from July 11 to 25 to meet with key officials and assess the country’s overall economic performance.
“The Philippines has been one of the region’s strong economic performers over the past years, reaping the fruits of prudent policies and critical reforms,” Breuer said.
“The team welcomes the authorities’ strategy of maintaining policy continuity, while adapting to emerging challenges, and taking advantage of the strong economy to implement reforms to improve inclusive growth and job creation. This strategy has served the Philippines well,” he added.
Tighter monetary conditions
Despite the rosy picture, the IMF said the economy will need certain certain adjustments in its policies to safeguard the stability of its growth.
Among the main threats cited by the IMF included the rising inflation path of the country in recent years.
In the first half of the year, the average inflation of the country hit 4.3 percent— higher than the 2 percent-to-4 percent target range of the BSP for the year.
Latest inflation print is at 5.2 percent for June, with BSP officials saying this is not the peak of inflation yet, and can still go higher until the third quarter of this year.
IMF believes that inflation will gradually go back to target in 2019, but further tightening from the BSP is warranted.
The BSP has already let out two consecutive 25-basis-point rate hikes for the year, one in May and one in June. The BSP Monetary Board is expected to meet again in August 9 for its monetary-policy setting meeting.
“Further tightening monetary policy to anchor inflation expectations, conditional on domestic and external developments [is needed]. The BSP’s recent decisions to increase the policy rate twice were appropriate,” Breuer said.
“The team welcomes the BSP’s announced readiness to take further action to safeguard price stability and continued progress in modernizing monetary operations and reforming the capital markets,” he added.
Just a few days ago, BSP chief Nestor A. Espenilla Jr. made a strong policy hint for next meeting’s policy meeting, saying they are prepared to make stronger follow through actions to the rate hikes already made in the previous months.
Another hike won’t hurt–Security Bank chief
In a separate briefing on Wednesday, Security Bank President and CEO Alfonso Salcedo Jr. said the local economy is strong and prepared enough should the BSP continue to hike rates for the year.
Salcedo said another 50-basis-point hike this year from the BSP is “not big enough to dampen business expansion” in the country.
The banker said rates in the country continue to be relatively low and a 100- to 150-basis-point hike in the BSP’s overall interest rate is “manageable” and will not derail demand or growth for economic expansion.
Image credits: Alysa Salen