MULTI-LATERAL lender International Monetary Fund retained its growth forecast for the Philippines this year at 6 percent and 6.2 percent in 2017, saying the expansion could be higher in the medium term if the country will spend more on infrastructure and the education and health of its population.
“A higher revenue and productive spending scenario of about 3 percent of GDP with the expeditious implementation of the 10-point reform agenda [of the Duterte administration] would raise the IMF staff’s baseline growth outlook of about 6 to 7 percent to a 7 to 8 percent range over the medium term,” mission chief Chikahisa Sumi said in a briefing Tuesday.
“This additional effort scenario would make the Philippines one of the fastest growing [if not the fastest] economies in the world and help reduce poverty toward the government’s ambitious target,” Sumi said.
The IMF during the World Economic Outlook for April also kept the growth forecast for the Philippines this year at 6 percent and 6.2 percent in 2017.
Given the large infrastructure and social needs and ample fiscal space, Sumi said IMF supported raising the national government budget deficit to 3 percent of the gross domestic product over the medium term.
“We would moreover encourage a comprehensive and equitable tax reform package that raises substantial additional revenue to finance higher productive spending that would crowd in private investment,” Sumi said.
He said the Philippine economy was doing “very strong” despite the external headwinds coming from trade slowdown globally, volatility in the financial markets, and the recent exit of United Kingdom from the European Union.
“The Philippines has a growing young population which is a blessing. But if there is no vital investments in education and health, this can turn to an unemployment issue [in the future]. This will have negative impact to the economy,” Sumi said.
“In order to reap the country’s demographic dividends, the Philippines needs to invest in education and health, aside from infrastructure,” Sumi said.
He cited a need to ensure that the benefits reached the broader population, noting that infrastructure quality and social indicators were still below those of peers.
GDP grew to a robust 6.9 percent in the first quarter, significantly higher than 5 percent a year ago which, Sumi said, was in line with its expectation of a 6-percent growth forecast for the whole year.
Sumi also noted the low inflation environment, which was below the government’s target range of 2 to 4 percent.
However, Sumi said the Philippines’ favorable medium-term outlook could be subject to downside risks mainly from the global environment.
“On the downside, lower growth in China and the region, tighter global financial conditions, and a surge in global financial volatility could lead to capital outflows and tightening of domestic financial conditions,” Sumi said.