The International Monetary Fund (IMF) has retained its Philippine growth forecast for 2017 at 6.8 percent, pointing to strong domestic demand, a recovery in exports, and higher public spending as major growth drivers.
“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,” Shanaka Jayanath Peiris, IMF resident representative to the Philippines, told reporters by email on Tuesday after the release of the World Economic Outlook (WEO) Update report.
“Public spending is expected to rise as the fiscal deficit target has been increased to 3 percent of GDP in 2017 and provide a stimulus to economic activity,” he added.
The IMF’s 2017 forecast falls within the government’s 6.5 percent to 7.5 percent official gross domestic product (GDP) growth target this year, but lower than the revised 6.9 percent growth recorded last year. Its 2018 forecast falls below the 7 percent to 8 percent target of the government.
Peiris also said higher commodity prices would drive up inflation to 3.6 percent in 2017 and 3.3 percent in 2018, although still within the BSP’s target range of 2 percent to 4 percent for both years. Inflation averaged 1.8 percent in 2016.
China spillover ‘manageable’
He said the external position of the Philippines would continue to be comfortable amid ample international reserves.
Moreover, spillovers from slower growth in China or higher global financial volatility should be manageable for the Philippines because of its strong economic fundamentals, ample policy space, and limited trade and financial linkages with China, Peiris said.
Nonetheless, the Philippines will be affected should growth in the region slow, while the impact from a tightening of US monetary policy will depend on the extent to which it is driven by stronger US growth.
“Protectionist policies in advanced economies would have an overall negative impact in Asia including the Philippines but the magnitude of impact and channels would depend on the specific policies that are still uncertain,” he said.
Peiris urged the government to focus on policies promoting inclusive growth, such as closing the gaps in infrastructure and human development particularly in poverty-stricken rural areas.
He noted that fiscal policy was already oriented toward social and infrastructure expenditure, financed by additional borrowing and higher revenue.
Tax reform needed
Peiris said the government’s tax reform proposal would be critical to financing additional spending and preserving low borrowing costs.
Package One of the Comprehensive Tax Reform Program is outlined in House Bill 4774, which is expected to be approved by Congress later this year. It calls for lower personal income tax rates while providing revenue-enhancing measures which, among others, seek to reform the excise tax system for fuel and automobiles and broaden the value-added tax (VAT) base, while retaining exemptions for seniors and persons with disabilities.
Peiris also stressed that 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 (QR) on rice imports and promoting secure land titles in agriculture which could be used as collateral for bank loans,” he added.
Other updated forecasts
Earlier, multilateral lender World Bank forecasted Philippine GDP to grow by 6.9 percent this year, supported by ongoing infrastructure projects, strong consumption, buoyant inflows of remittances, and strong revenue from services exports.
Manila-based lender Asian Development Bank has retained its previous 6.4-percent growth outlook for the Philippines, with public and private investments seen as drivers of growth.
Banking giant Standard Chartered Bank revised upward its GDP growth forecast for the Philippines to 6.8 percent from 6.7 percent, expecting still strong household spending and infrastructure investment to provide strong support for growth this year, similar to 2016.
IHS Markit forecast the Philippine economy to grow 6.3 percent, citing the information technology and business process outsourcing industry and remittances from workers abroad as two key growth engines.
German lender Deutsche Bank revised upward its 2017 growth outlook for the Philippines to 6.2 percent in 2017 from the previous forecast of 5.8 percent on account of a stronger-than-expected exports rebound.