The Philippine economy may expand 6.5 percent this year but the challenge for the country is to continue implementing policies that deliver high quality and sustainable growth, the International Monetary Fund (IMF) said in a concluding statement on its 2014 Article IV Consultation Mission to the Philippines.
“Our forecast of growth easing to 6.5 percent this year embeds the assumptions of tightening conditions both those induced or coming from abroad, as well as some tightening domestically,” Rachel van Elkan, IMF mission chief said in a media briefing on Wednesday.
Van Elkan noted that the Philippine economy is “well positioned” to absorb a gradual tightening of United States financial conditions and to implement timely, measured action on the domestic policy front.
With potential growth estimated at 6.25 percent, the positive output gap is expected to widen slightly in 2014 as the fiscal stimulus from reconstruction activities related to Super Typhoon Yolanda further supports growth.
The IMF called for further reductions in bottlenecks that may be discouraging broader-based business activities, so that the Philippines may realize its full potential for “rapid, sustained and inclusive growth.”
“A diversified production structure is, in turn, more conducive to delivering more durable, employment-intensive growth. This would help achieve significant progress in lowering unemployment and poverty rates, therefore, reducing the number of people who may be vulnerable to natural disasters and other shocks,” it stated.
The IMF’s latest growth forecast for the country is higher compared with its previous growth estimate of 6.3 percent, although the new projection stands near the low end of the government’s 6.5-percent to 7.5-percent growth target for this year.
In the fiscal area, the IMF supports the government’s objective of narrowing infrastructure gaps and mobilizing additional revenue.
It said that increasing the national government deficit to 2 percent of gross domestic product in 2014, together with continued modest revenue gains from stronger tax administration, would accommodate sizable reconstruction spending needed under the “build back better” standards arising from the recent earthquake and typhoons.
On the structural policy front, the IMF said that further reforms are needed to create a more enabling business environment and to generate additional employment.
“Improved prospects for local employment and lower incidence poverty would reduce the appeal of working abroad, allowing more local talent to be deployed in the country,” it added.