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Friday, March 29, 2024

Economic outlook still favorable – IMF mission

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The economic outlook for the Philippines remains favorable this year, but will be challenged by external headwinds, particularly the sluggish regional growth and the impact of US monetary policy tightening, the International Monetary Fund said at the conclusion of a mission visit to Manila.

An IMF mission visited Manila on Feb. 20 to Feb. 24 to assess recent economic developments. The mission met with Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr., the secretaries of the economic cluster, senior government officials, private sector representatives and the financial community.

IMF resident representative to the Philippines Shanaka Jayanath Peiris last month said the country’s gross domestic product was expected to expand 6.8 percent in 2017, slightly faster than its previous estimate of 6.7 percent, following a strong fiscal stimulus with budget deficit widening towards 3 percent of GDP.

“The economic outlook continues to be favorable, although subject to external headwinds. In 2017, growth is projected at 6.8 percent on continued strong domestic demand and a mild export recovery,” the mission’s statement said. It said inflation was expected to rise to 3.6 percent (from the average of 1.8 percent last year) due to higher commodity prices, pass-through from peso depreciation and strong economic activity.

It said a higher infrastructure and social spending was expected to increase the budget deficit to 3 percent of GDP.

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“The outlook is subject to downside risks, including from lower regional growth, capital outflows from US monetary  policy tightening and heightened global policy uncertainty. Upside risks include a faster pace of budget execution and higher global growth,” IMF said.

Experts believe the Fed will raise interest rates next month, as chairman Janet Yellen hinted of a looming policy adjustments during a recent meeting.

IMF said Bangko Sentral should remain vigilant to signs of overheating or an undue acceleration of credit growth, although the financial sector continued to remain sound.

“Over the medium term, a continuation of sound macroeconomic policies and structural reforms would be important to sustain investor confidence and make growth more inclusive. Key reforms include those aimed at raising productive investment, opening up the economy to greater competition and foreign investment, and reducing poverty such as by removing the quantitative restrictions on rice imports,” it said.

The 2017 Article IV consultation mission plans to visit Manila in the middle of this year to discuss the economic outlook and medium-term policy challenges in more details, it said.

The inter-agency Development Budget Coordination Committee set the growth target at 6.5 percent to 7.5 percent in 2017 and 7 percent to 8 percent in 2018 and 2019.

The economy grew 6.8 percent last year, near the upper bound of the Duterte administration’s target range of 6 to 7 percent for 2016.

Finance Secretary Carlos Dominguez III said sustaining the economic growth would be a challenge if the Comprehensive Tax Reform Program would not push through.

Dominguez said funding the Duterte administration’s ambitious infrastructure program by raising sufficient revenues for tax reform, rather than relying primarily  on borrowings, was necessary to keep the budget deficit within the manageable level of 3 percent of GDP beginning 2017.

He said the incremental revenues estimated to be collected from the first package of the CTRP amounting to P163 billion in 2018 was consistent with the planned increase in the budget deficit from 2.7 percent of GDP in 2016 to 3 percent of GDP from 2017 and until the remainder of the Duterte presidency.

He said that without the tax reforms,  the deficit of 3 percent of GDP would be breached, leaving the country susceptible to an unsustainable fiscal position, which could lead to a credit rating downgrade below investment grade. 

“The non-passage of the tax reform package now pending in the Congress will have dire consequences not only on our hard-earned gains in improving our macroeconomic fundamentals but also on the lives of our poor and vulnerable fellow Filipinos,” Dominguez said.

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