Philippine economy to remain fastest growing in region – IMF

WASHINGTON – The International Monetary Fund (IMF) expects the Philippines to book the fastest economic growth in the region over the next two years amid the projected stronger global economic recovery.

IMF resident representative Shanaka Jayanath Peiris said in an email that the multilateral fund expects the Philippines to book a gross domestic product (GDP) growth of 6.8 percent this year and 6.9 percent for 2018 on the back of a strong rebound in export earnings.

“Growth is projected to remain robust at 6.8 percent in 2017 and 6.9 percent in 2018, led by strong domestic demand and a recovery in exports,” Peiris said.

The projected growth for the Philippines this year is faster than China’s 6.6 percent, Vietnam’s 6.5, Indonesia’s 5.1, Malaysia’s 4.5, Thailand’s three, Singapore’s 2.2 and Taiwan’s 1.7 percent.

Economic managers of the Duterte administration penciled a GDP growth range of 6.5 to 7.5 percent for this year.

The Philippines emerged as the fastest growing economy in the region last year with a GDP growth of 6.9 percent from 5.9 percent in 2015, aided by one-off gains from election related spending that boosted consumption as well as higher investments. This was faster than China’s 6.7 percent, Vietnam’s 6.2 percent, Indonesia’s five percent, Malaysia’s 4.2 percent, Thailand’s 3.2 percent, Singapore’s two percent and Taiwan’s 1.4 percent.

Based on the April World Economic Outlook released by the IMF, it upgraded the global GDP growth forecast to 3.5 instead of 3.4 percent this year and retained next year’s projection of 3.6 percent from 3.1 percent in 2015 amid stronger activity and expectations of more robust global demand.

The multilateral lender retained the GDP growth forecast at 2.3 percent and 2.5 percent for 2017 and 2018, respectively from 1.6 percent last year but upgraded the forecast for the Euro area for this year to 1.7 percent instead of 1.6 percent and 1.6 percent for 2018.

The GDP growth forecast for the United Kingdom was also upgraded to two instead of 1.5 percent for this year and to 1.5 instead of 1.4 percent for 2018, while that of Japan was raised to 1.2 instead of 0.8 percent for this year and 0.6 instead of 0.5 percent next year.

For China, IMF upgraded the growth forecast to 6.6 instead of 6.5 percent for this year, and to 6.2 instead of six percent for 2018.

“Spillovers from lower growth in China or higher global financial volatility should be manageable for the Philippines due to its strong economic fundamentals, ample policy space, and limited trade and financial linkages with China. Nonetheless, the Philippines would be affected more strongly should growth for the region slow,” Peiris said.

He pointed out both the ongoing normalization of interest rates by the US Federal Reserve as well as the protectionist policy of the Trump administration would have an overall negative impact in Asia including the Philippines.

Peiris cited the priorities of the Philippine government including addressing the gaps in infrastructure and human development, particularly in the rural areas.

“The authorities see more inclusive growth at the center of their policy challenges. Fiscal policy is correctly focused on more inclusive growth by increasing social and infrastructure expenditure, financed with additional borrowing and higher revenue,” he added.

He also explained enactment of the proposed Comprehensive Tax Reform Program (CTRP) submitted by Finance Secretary Carlos Dominguez III covering personal income tax, value added tax (VAT), and excise tax this year would be critical to finance the additional spending and preserve the low borrowing costs.

According to the IMF representative, further enhancing competition and opening up the economy to foreign investment would raise competitiveness and help create high quality jobs.

“We also support the authorities’ initiatives to improve the conditional cash transfer program, raise investment in education and health, and increase agricultural productivity by removing quantitative restrictions on rice imports and promoting secure land titles in agriculture which could be used as collateral for bank loans,” Peiris added.

With the projected faster economic growth, Peiris said higher commodity prices would push inflation higher to 3.6 percent in 2017 and 3.3 percent in 2018 from 1.8 percent last year, but would still be within the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

He said the plan of the Duterte administration to ramp up infrastructure spending would raise the budget deficit to about three percent of GDP this year, providing stimulus to the economy.

The IMF also expects the Philippines to book a current account deficit for 2017 and 2018 due to higher capital goods imports and investments, but the country’s external position would continue to be comfortable amid ample international reserves.

For his part, Finance Undersecretary Gil Beltran told The STAR the impact of the series of rate hikes by the US Fed would be muted as these have been factored into the fiscal projections of the Philippines starting this year.

Beltran said the country has reduced the debt to GDP ratio to 42 percent, while interest payments as a percentage of GDP would decline to 2.1 percent by 2022 from 2.7 percent in 2016.

“GDP has been rising at a steady pace, faster than the debt stock,” he said. The debt stock of the national government stood at P6.21 trillion as of end-February this year.