"It’s within the realm of possibility."
The IMF (International Monetary Fund) regularly conducts consultations with each of its member-countries to review their progress, discuss their plans, strategies and targets and express thoughts on the near-term economic prospects of the member-countries. A team from IMF’s Washington D.C. headquarters, joined by the Fund’s resident representative in Manila, recently completed a consultation with the economic managers of the Duterte administration and the BSP (Bangko Sentral ng Pilipinas) and, as is the practice, issued a statement jointly with this country’s economic panel.
“The [Philippines’] outlook is positive,” was the IMF staff report’s overall conclusion from the discussions. As a result of the “structural reform momentum and the infrastructure push of the government,” the Philippine economy remained strong, the report said. “The Philippine economy continues to be a strong performer despite recent headwinds,” it added.
The IMF expects this country’s GDP (gross domestic product) growth this year to be higher than 2019’s 5.9 percent. Its forecast is 6.3-percent growth. Both figures are lower than the government’s growth-target range of 6.5-7.5 percent.
The IMF staff report goes on to say this: “(R)eal GDP growth has regained momentum …. and is projected to firm up further in 2020, underpinned by government-spending acceleration and the recent monetary easing. Are these two positive factors—accelerated government spending and monetary easing – likely to be able to deliver the incremental 4.0 percent (6.3 percent less 5.9 percent) Philippine GDP growth?
In recent years, the Philippine economy has shown itself capable of delivering above-6-percent annual GDP growth, and it therefore should be able to achieve the 6.3 percent growth that the IMF has forecasted for 2020. However, the IMF staff report made it a point to say that there were “downside risks” to its forecast.
The IMF is right; there are downside risks to the achievement of 6.3 percent Philippine GDP growth this year. The risks are on both the fiscal and the monetary side of the Fund’s forecast.
In a recent column I discussed the risks facing a program of government-spending acceleration. These are administrative inefficiency, absorptive capacity and leakages (better known as corruption). These features of public-sector life have not gone away; their influence on government spending will be every bit as pervasive in 2020 as in 2019. In the cited column I expressed the view that the four-month delay in the approval of the 2019 GAA (General Appropriations Act) was not the principal cause of the 2019 GDP growth slowdown.
On the monetary side of the discussion, it bears saying at once that “monetary easing” does not always translate into sharp pickups in private-sector borrowing and spending. There is an old adage that one can bring a horse to the water but one may not be able to make it drink. The banking system cannot always be counted upon to (1) make many more laws or (2) lower their loan interest rates in the wake of the money-supply increase generated by the BSP’s “monetary easing.” The said easing may simply result in the banking system’s having more funds with which to bring Treasury bills and other government securities. Monetary easing will go far little or far nought if there is no inclination on the part of the banks to engage in their own kind of easing.
On the consumption side of the issue, consumers, who account for approximately two-thirds of this country’s GDP, may not be inclined to increase their borrowing/spending if there is no cost-of-money incentive for them to engage in more borrowing/spending or if they are apprehensive about future economic conditions. To say that at present there are many reasons for consumers to be apprehensive is to state the simple truth.
Provided that what the IMF has called downside risks are effectively addressed, 6.3 percent Philippine GDP growth in 2020 is within the realm of possibility. To repeat, the Philippine economy has in recent years shown itself capable of that kind of performance.