The International Monetary Fund (IMF) has cut its 2016 and 2017 Philippine growth forecasts, noting downside risks stemming from external developments, as well as weather-related disruptions.
The revisions followed a February 11-17 visit by an IMF mission, which met officials of the Bangko Sentral ng Pilipinas, Cabinet secretaries, private sector representatives and the financial community.
Mission head Chikahisa Sumi, in a concluding statement, said real gross domestic product (GDP) growth was likely to hit 6 percent this year and 6.2 in 2017, with continued strong domestic demand offsetting weak net exports.
The IMF’s previous projections were 6.2 percent and 6.5 percent growth for 2016 and the following year, respectively.
The new forecasts are also lower than the government’s downwardly-revised 6.8 percent to 7.8 percent target—from 7 percent to 8 percent—for 2016 as well as the 6.6 percent to 7.6 percent range set for 2017.
GDP growth eased to 5.8 percent last year from 6.1 percent in 2014 on the back of an exports slowdown, among other factors.
“The economic outlook is favorable but subject to increased downside risks, including lower growth in China and the region, higher global financial volatility and capital outflows, and weather related disruptions,” Sumi said.
The IMF nevertheless stressed that the Philippines’ capacity to respond if the risks materialized was substantial given ample reserves and policy space.
It cited that credit growth slowed to 13.1 percent in 2015 and was supportive of financial stability and sustainable growth, with private credit to construction and real estate having moderated.
Monetary conditions remain supportive of growth, it also said, noting that central bank policy has remained unchanged since late 2014. Fiscal policy, meanwhile, wa s said to be focused on the medium-term objectives of supporting inclusive growth and infrastructure investment.
“With the deficit at 2.0 percent of GDP, the 2016 budget will provide a modest fiscal stimulus and is consistent with a declining public debt ratio,” Sumi said.
Going forward, IMF said a continued emphasis on raising tax revenue was important to address the country’s large infrastructure and social needs.
“Over the medium term, a continuation of prudent macroeconomic policies and good governance would be critical to sustain investor confidence and the growth momentum,” Sumi added.
To support growth, he pointed out that structural reforms were also needed to address issues such as the low rate of national investment, opening up the economy to greater competition and foreign investments, and high poverty and inequality.