IMF cuts PH growth forecasts for 2017, 2018

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The International Monetary Fund (IMF) has trimmed its growth forecasts for the Philippines but said the country remained an economic standout amid global uncertainties.

“Growth is projected to remain close to potential at 6.6 percent in 2017 and 6.8 percent in the medium term, supported by robust domestic demand and recovery in exports,” IMF mission head Luis Breuer said on Tuesday.
The 2017 projection was revised downward from the previous 6.8 percent on account of a slower-than-anticipated first-quarter expansion.

“Overall, we are very optimistic on growth in the Philippines. It is true that for now, [the]growth projection was revised a little bit. The reason for that was basically math. Growth in the first quarter of the year was lower than anticipated… so the numerical average reduces the growth,” he explained.

The revised 2017 forecast — within the government’s 6.5 percent to 7.5 percent target — represents a slowdown from last year’s actual gross domestic product (GDP) growth of 6.9 percent.


The Philippine economy grew by 6.4 percent in the first quarter of the year, down from 6.9 percent a year earlier and the 6.6 percent recorded in the last three months of 2016.

For 2018, IMF trimmed its growth projection to 6.8 percent from the previous 6.9 percent.

Nevertheless, Breuer said the Philippines was still in a good place amid uncertainties brought about by US policies, China’s expected slowdown, Brexit concerns and geopolitical tensions.

“In that ecosystem, the Philippines really stands out as a place that continues to do very well economically. Growth is very strong, At the same time, inflation is very low,” he said.

Reforms

Breuer also said the environment was favorable for the government’s economic growth agenda.

“The team supports the authorities’ plans to raise infrastructure and social spending-to expand the productive capacity of the economy, while anchoring fiscal policy at the deficit cap of 3 percent of GDP over the medium term,” he said.

Approval of the first package of planned tax reforms is critical, Breuer said, as this would support higher expenditures, keep borrowing costs low and sustain investor confidence.

Also, passage of budget reform and rightsizing measures will help further improve spending efficiency and quality.

Breuer also noted the need to approve changes to Bangko Sentral ng Pilipinas’ charter to strengthen the financial stability framework and enhance the monetary transmission.

“In the interim, enhanced coordination and surveillance among the financial sector regulatory bodies should continue to be strengthened, particularly to fill in data gaps. In addition, amending the bank secrecy law and anti-money laundering framework to be more in line with international standards would be important to maintain financial integrity and confidence,” he said.

The IMF official said structural reforms were essential to sustaining rapid inclusive growth to significantly lower poverty and maximize the country’s demographic dividend.

“Regulatory reforms to reduce the costs of doing business should promote competition and openness to foreign investment, including revision of the foreign investment negative list and in public services. Structural reforms such as eliminating quantitative restrictions in rice imports while supporting affected farmers, would help reduce consumer prices and poverty,” he added.

Risks

Breuer said risks to Philippine economic growth were tilted to the downside and stemmed mainly from external sources.

“External risks include spillovers from lower growth in China, U.S. monetary policy tightening, and rising concerns about globalization in some advanced economies,” he said.

He also noted that the combination of rapid credit growth, buoyant private investment and fiscal expansion could lead to overheating.

“Other domestic risks include natural disasters and security-related events in some parts of the country,” he said.

DBM commits

Budget Secretary Benjamin Diokno said his department remained committed to promoting rapid and equitable growth in line with the Duterte administration’s development objectives.

“I note that the IMF has recognized the structural reforms that we have introduced such as the tax reform program, the national government rightsizing program and the budget reform bill. They will improve the functioning of the public sector and boost the Philippine economy’s growth trajectory,” Diokno said in a text message.

He said the rightsizing program would enhance government’s capacities and streamline the bureaucracy for more efficient public service delivery.

The budget reform bill, meanwhile, will institutionalize reforms that have been made so far and mandate the disciplined execution of the national budget with the shift to one-year cash budgeting.

Downward revisions

The IMF’s move to trim its Philippine growth forecasts was in line with other downward revisions.

Last week, local lender Metropolitan Bank & Trust Co. trimmed its 2017 Philippine growth forecast to 6.6 percent from the previous projection of above 7 percent.

Standard Chartered Bank has also cut its 2017 forecast to 6.5 percent from 6.8 percent, as has Credit Suisse which is now estimating growth of 6 percent and not 6.4 percent.

The World Bank’s 2017 forecast is also a lower 6.8 percent, from 6.9 percent previously, with the first quarter slowdown cited for the revision.

ANZ Research, meanwhile, has kept its forecast at 6.9 percent, saying overall growth was strong and balanced. Capital Economics noted the economy was likely to continue growing at a solid 6.5 percent, while DBS and IHS Markit maintained their forecasts at 6.4 percent.

First Metro Investment Corp. and the University of Asia and the Pacific also maintained their GDP forecast at 7 percent for the year.

The Asian Development Bank, meanwhile, has raised its forecasts to 6.5 percent for 2017 and 6.7 percent for 2018.

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