|
By Maricel E. Burgonio Reporter
THE International Monetary Fund (IMF)
cuts its economic growth forecast for the Philippines this year on
the back of slowing external demand and softening consumption.
In a statement, the world’s
lender-of-last-resort said the Philippines’ gross domestic product
(GDP) is likely to grow 5.2 percent this year, or lower than its
earlier projection of 5.8 percent.
An IMF team led by Mr. Il Houng
Lee visited Manila last week to exchange views with government
officials and other key stakeholders on recent economic
developments.
“Growth is expected to
slow and inflation will likely remain elevated,” the IMF said,
adding the macroeconomic policy environment has become more
challenging.
The Development and Budget
Coordinating Committee recently cut its Philippine GDP forecast to a
range of 5.7 percent to 6.5 percent this year from 6.1 percent to
6.7 percent earlier, citing higher oil prices. The interagency body
had revised upwards its forecast for Dubai crude, the Philippines’
benchmark for the commodity, to an average of $115 to $125 per
barrel.
“The Philippines, together with
its peers in the region, faces the twin challenges of a slowing
global economy and escalating food and fuel prices. Moreover,
efforts to mitigate the impact of higher food prices on the poor
adds to the fiscal burden,” the IMF said.
Due to past fiscal and other
reforms, the impact on the overall economy from the deteriorating
external environment has so far been contained, the Washington-based
multilateral institution said.
Due to higher oil prices, the IMF
also expects inflation to post a double-digit growth in the coming
months.
“Sustained high inflation can
unseat inflation expectations and complicate macroeconomic
management,” it said.
The inflation rate last month
rose to a nine year high of 9.6 percent. Consequently, the Bangko
Sentral ng Pilipinas (BSP) said inflation is likely to peak at 10
percent to 11 percent in the third quarter of the year.
The IMF said the BSP has
appropriately recalibrated its stance by increasing its policy rate
by 25 basis points. It also said that local monetary authorities are
prepared to take additional action as and when necessary to address
the threat of high inflation.
“Monetary policy is
appropriately hawkish in a rapidly evolving environment,” the IMF
said.
The BSP raised its key
policy rates by 25 basis points in June 5, causing its overnight
borrowing and lending rates to rise to 5.25 percent and 7.25
percent, respectively. The policy was based on the Monetary
Board’s assessment that there are already early signs of
supply-driven pressures feeding into demand. The BSP said the recent
hike in interest rates is enough to anchor inflation expectations.
Monetary authorities forecast
inflation to reach 7 percent to 9 percent this year from 2.8 percent
last year.
Also, the IMF is supportive of a
targeted increase in pro-poor spending that may entail a modest
fiscal deficit this year. Despite its support for this year’s
spending tack, the multilateral agency said it is important to
protect the 2009 fiscals program.
The recent reduction in public
debt, from about 100 percent of GDP in 2003 to 62 percent last year,
has provided some scope for increased social spending, the IMF said.
It cautioned that the additional
spending however should be limited to well-targeted schemes for
protecting the poor, such as through well-designed conditional cash
transfer schemes.
“Limiting the deficit and
increasing the tax effort to secure revenue will assure investors
that the Philippines remains committed to medium term fiscal
consolidation,” it said.
BSP bullish on new
govt growth goal
For its part, the BSP said it is
confident that domestic economic growth would fall within the
government’s reduced forecast despite a lower balance of payments
(BOP) surplus.
BSP Gov. Amando M. Tetangco, Jr.
told reporters that increases in government spending, sustained
growth in business process outsourcing and the mining sector, and
steady or increased private consumption on the back of strong
remittances will lift the economy.
“Notwithstanding that the
downward revision to the BOP surplus is due in part to slower global
demand, there are other factors that could help keep growth within
the projected range,” Tetangco said.
The BSP recently revised
downwards its BOP surplus projection to $2.5 billion this year from
$3.4 billion driven mainly by the slower global demand which
dampened the country’s export performance, foreign direct and
portfolio investments and other economic transactions.
Tetangco said remittances by
overseas Filipinos are expected to grow 10 percent to $15.9 billion
this year while gross international reserves would reach $36.5
billion to $37 billion by year-end.
The BOP summarizes a country’s
economic transactions with the rest of the world and includes its
external trade in goods and services, net investments both direct
and portfolio, and other transfer payments.
A surplus arises when the country
earns more foreign exchange than it gives up, and helps to boost its
dollar reserves, an increase in which lifts the local currency and
tempers domestic price increases. 
|
