IMF Maintains PHL Growth Forecast at 6.7%; Raises Inflation Outlook on Impact of El Niño

The International Monetary Fund (IMF) has maintained its growth projection for the Philippines this year at 6.7 percent despite a weak global economy.

Chikahisa Sumi, head of IMF 2015 Article IV Consultation Mission to the Philippines, said the 2015 growth forecast is unchanged taking into account the lower commodity prices and improved budget execution.

Sumi said the country’s current account surplus is expected to exceed five percent of gross domestic product (GDP) this year due to lower oil prices and continued inflows from business process outsourcing (BPO) and remittances.

“The outlook for the Philippine economy remains favorable despite uneven and generally weaker global growth prospects,” he said in a statement following the May 14 to 31 consultation mission.

Sumi noted that risks to the outlook stem from both external and domestic sources.

He said net exports are projected to soften amid sluggish trading partner growth and real exchange rate appreciation.

Sumi added that an upside risk is a stronger lift to demand from lower commodity prices.

“On the downside, disruptive asset price shifts due to asynchronous monetary policies in advanced economies are a risk, but the Philippines’ strong fundamentals should provide the necessary cushion,” he said.

The IMF official also cited the moderate impact of the El Niño conditions that can bring the full-year inflation average to 2.4 percent, higher than its previous forecast of 2.1 percent.

Sumi noted that the El Niño conditions will lead to a poor harvest and a rapid run-up in food prices.

“The Philippine authorities have undertaken preemptive measures and continue to be prepared to respond as needed with suitable policies should any of these risk scenarios materialize, given the Philippine economy’s strong fundamentals and ample policy space,” he added.

The Philippine government has set a target of two and four-percent average inflation for 2015 and 2016.

Sumi underscored the need for the Philippines to undertake fiscal policy that focus on supporting infrastructure investment and inclusive growth to sustain growth.

To support a higher level of budgetary spending on infrastructure and social needs over the medium term, he said additional fiscal revenue would need to be raised.

“In this respect, the mission strongly encourages a comprehensive tax reform package that is net revenue enhancing, and urges the authorities to avoid any tax package that would entail a net revenue loss,” Sumi said.

He cited lowering of personal tax rates without the concomitant rationalization of exemptions or incentives or rise in fuel excise taxes.

“The mission also supports the Department of Finance’s efforts to allow the tax authorities’ access to bank deposit information and make tax evasion a predicate crime to improve the efficiency and equity of revenue collection,” he added. (PNA) CTB/LDV