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IMF lowers PHL growth forecast, raises need for higher public spending in ’12

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The International Monetary Fund (IMF) cut its 2011 and 2012 growth forecast for the Philippines due to lower domestic output and negative external developments.

IMF now projects a 3.7 percent growth, as measured by gross domestic product (GDP), for the country this year, from 4.7 percent last September. For 2012, the GDP forecast is now at 4.2 percent from 4.9 percent previously.

“(The cut was due to) a combination of GDP development and the negative global environment,” IMF Article IV Consultation Mission chief Vivek Arora said in a briefing Monday.

Growth in the third quarter this year further slowed to 3.2 percent, a bit higher than the downwardly revised 3.1 percent for the second quarter.
Arora said growth can be boosted next year by increasing government spending, which was low in the earlier part of the year on account of stricter rules on government processes.

He said monetary policy in the country remained supportive of growth and what should be focused on was the fiscal policy.

“The under-spending this year gives the government the flexibility to substantially expand spending next year while still hitting the 2.6 percent debt to GDP target,” he said.

He said that the IMF latest outlook for the country was a low external support and more on domestic demand.

“The outlook in global economy is sluggish. We don’t expect much support on external demand next year…We feel that domestic demand will offset the effects of external demand next year,” he said.

As of last October, budget gap stood at P74.25 billion, 72.53 percent lower than the P270.30 billion during the same period last year and way below the P300 billion ceiling set for this year.

Revenues in the first 10 months this year rose to P1.12 trillion, 12.87 percent higher than year-ago’s P993.22 billion while expenditures reached P1.2 trillion, 5.40 percent lower than year-ago’s P1.26 trillion.

For next year, Arora said there was a need for “some additional efforts” to raise revenues and backs efforts like improvements in the excise tax and reduction in tax incentives.

“Over the medium term, the planned fiscal consolidation should strengthen the ability of the budget to respond to future shocks…The authorities’ emphasis on strengthening tax compliance is appropriate and the Fund continues to support these efforts with technical assistance. In addition, it will be important to reform excises, rationalize fiscal incentives, and broaden tax base,” the IMF said in a statement.

The IMF believes that monetary policy in the country “has responded well to changing circumstances.”

Arora does not see any need for policy easing at this point but pointed out that there is a need to adjust when need arises.

"Pause in monetary tightening has been justified,” he said.

Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) last Dec. 1 again kept central bank’s policy rates for five consecutive MB meetings as inflation is expected to stay within the three to five percent target until 2013 and on back of expected weak domestic and global growth.

To date, BSP’s overnight borrowing rate is still at 4.5 percent and the overnight lending rate at 6.5 percent.

Relatively, IMF expects inflation to “remain within the target range this year and next and the balance of payments to stay in surplus.”

Rate of price increases in the first 10 months this year averaged at 4.5 percent after last November’s inflation rate slowed to 4.7 percent from this year’s peak of 5.3 percent.

The government’s inflation target for this year until 2014 is a range between three to five percent.

IMF said the Philippines, like other countries in the region, was affected by the negative external environment “but macroeconomic conditions remain generally sound.”

It said that “the authorities’ policy management was supporting confidence and thas built up room for a strong response should further negative shocks occur.”

“The key challenge now is to navigate through the period of global uncertainty to maintain macroeconomic stability while building the foundations for faster and more inclusive growth,” it said.

By Joann Santiago




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