IMF lifts 2017 PH growth forecast

The International Monetary Fund (IMF) has raised its growth forecast for the Philippines this year to 6.8 percent, faster than the previous estimate of 6.7 percent, on strong domestic demand.

The latest IMF mission report said the domestic economy continued to be favorable despite external headwinds.

“In 2017, growth is projected at 6.8 percent on continued strong domestic demand and a mild export recovery,” said IMF mission head Luis E. Breuer.

The IMF staff was in Manila from February 20 until Friday for their biannual country assessment as an IMF member.

The IMF, however, cited downside risks to growth, mostly driven by external factors.

“The outlook is subject to downside risks, including from lower regional growth, capital outflows from US monetary policy tightening and heightened global policy uncertainty,” said Breuer.

“Upside risks include

a faster pace of budget execution and higher global growth.”

The IMF official, who met with Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. among other economic cluster heads, said monetary policy has been supporting GDP growth and the implementation of the interest rate corridor in June last year has made the monetary transmission stronger.

“The BSP should remain vigilant of overheating or an undue acceleration of credit growth,” he however cautioned.

For the overall banking sector health, Breuer said the financial industry has “remained sound” and agreed with the BSP in allowing exemptions to the single borrowers’ limit (SBL) to lapse saying this reduces concentration risks in the banking sector.

The BSP earlier decided to allow banks to have higher SBL to free up funds for public-private partnership projects under the Aquino government.

On inflation, the IMF expects an average of 3.6 percent because of “higher commodity prices, pass through from currency depreciation and strong economic activity.” The BSP has a target inflation band of two percent to four percent.

As for the country’s fiscal policy agenda, Breuer is confident that the fiscal program is “appropriately focused” on solving the infrastructure gap and “inequalities.”

The IMF official said higher state spending on infrastructure and social services will likely increase the budget shortfall to three percent of GDP. He said it is important and “critical” the passing of the first package of the comprehensive tax reform proposal to sustain the rise in expenditures.

“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,” said Breuer.

Key reforms the IMF is closely watching out for are government changes that will improve productive investment, measures to liberalize the economy and poverty reduction efforts such as the removal of quantitative restrictions on rice imports.

The local GDP grew 6.8 percent last year which proved the Philippines continued to be “resilient to external shocks.”

For this year, the government is projecting 6.5 percent to 7.5 percent GDP growth.