MANILA— International Monetary Fund (IMF) remains optimistic on the sustained strong expansion of the Philippine economy but cited the possible impact of external developments as a downside risk to domestic growth.
In a statement after the recent IMF Team Article IV Consultation, the multilateral lender said the economy “continued to perform well” as shown in the 6.9 percent output in 2016 and 6.5 percent growth in the first half of the year, boosted by strong domestic demand, exports recovery and fiscal impulse.
It continues to see “favorable” outlook for the economy amidst external headwinds.
It maintained its 6.6 percent growth projection for the domestic economy this year and 6.7 percent next year “owing to continued robust domestic demand.”
Inflation is seen to average at 3.1 percent this year and three percent next year, within the government’s two to four percent target for 2017-19.
As of end-October this year, rate of price increases averaged at 3.2 percent.
Last October alone, inflation ticked up to 3.5 percent from month-ago’s 3.4 percent on account of faster increases in alcoholic beverages and tobacco; housing, water, electricity gas and other fuels; communication; recreation and culture; and restaurant and miscellaneous goods and services.
Year-ago inflation is lower at 2.3 percent.
The statement said the current inflation environment reflects “stable commodity prices and a near zero output gap.”
External and fiscal positions of the country “are robust”, it said, even as the current account balance is near zero, due mainly to higher importation in line with the increased demand of the domestic economy.
“The current account balance is projected to record a small deficit in 2017, because of strong infrastructure-related import growth,” it said.
The projected deficit in the current account position is seen to be countered by the robust gross international reserve amounting to USD81.35 billion as of last end-September this year, which is enough to cover 8.5 months’ worth of imports of goods and payments of services and primary income.
IMF eyes a government budget gap level of about 2.4 percent of gross domestic product (GDP) this year and net government debt of 34.6 percent of GDP, with government debt projected to decline as a percent of domestic output.
“Risks to the outlook are tilted to the downside, but the Philippines is well equipped to respond should risks materialize given its strong fundamentals and available policy space,” it said.
On the banking industry, the IMF said the Bangko Sentral ng Pilipinas’ (BSP) policy stance remains to be appropriate but pointed out that “the BSP should be ready to tighten if there are signs of overheating.”
“The authorities’ intention to unwind the high banks’ reserve requirements over time would reduce macrofinancial risks,” it said.
“However, this reform should be carefully calibrated and timed, and should aim to keep domestic liquidity broadly unchanged. The exchange rate should continue to move freely in line with market forces, with foreign exchange intervention limited to smoothing excessive volatility in both directions,” it said.
The report also “welcomes the recent amendment to the AML (Anti-Money Laundering) law to include casinos.”
“Notwithstanding this notable progress, the AML/CFT (Combating the Financing of Terrorism) framework could be strengthened further by amending the bank secrecy law and making tax evasion a predicate crime,” it added.