IMF hails strong growth

The International Monetary Fund (IMF) hailed the country’s strong growth but cited the need for monetary and fiscal authorities to achieve a balance between economic expansion and inflation without subjecting its citizens to the hazards presented by overseas — as well as domestically-induced instabilities.

For the IMF, it found the economy performing well given real gross domestic product (GDP) having actually expanded by 6.7 percent in 2017.

“The team projects that this rate will be sustained in 2018 and 2019, underpinned by strong consumption and investment, including public investment,” the IMF said at the conclusion of its two-week assessment of the Philippines.

The review was under the so-called Article Four covenant with member countries in which it affirmed continued growth for one of the region’s fastest-growing economies.

“To strike the right balance between growth and macroeconomic stability, policies need to be adjusted to reduce inflationary pressures while structural reforms should continue to support inclusive growth,” Luis E. Breuer, visiting IMF team leader, said in a statement.

This relates in the main to the need for the Bangko Sentral ng Pilipinas (BSP), for instance, to make the appropriate policy adjustments needed to ensure that growth, measured as the gross domestic product (GDP), persist on an expansion path averaging 6.7 percent this year or lower than the 7-percent output target projected by the government.

In this regard, BSP Governor Nestor A. Espenilla Jr. had, at various times in recent weeks, acknowledged the central bank stands ready to recalibrate the rate at which it deals with the various lenders to ensure against an overheating economy and an unstable currency.

This means the rate at which the BSP borrows from or lend to lenders could stand a recalibration should the seven-man Monetary Board find it appropriate when it next meet on 9 August this year.

Nevertheless, it flagged the “Rising international oil prices, external pressures on the peso, one-off effects of higher excise taxes and domestic demand pressures have led to a rapid increase in inflation, to 5.2 percent in June 2018 with year-to-date inflation averaging 4.3 percent. The current account deficit is expected to rise to 1.5 percent of GDP by end-2018, reflecting increased imports of capital goods and raw materials.

“Foreign direct investment, which reached a record level of $10 billion in 2017, is expected to moderate somewhat this year. The peso has depreciated by about 7 percent against the US dollar since the beginning of 2018 and gross international reserves, at $77.7 billion at end-June, remain more than adequate.”

The visiting team also said the country’s medium-term economic outlook is favorable even though short-term risks have risen as well.

This pertains to the view that the Philippines should post output GDP averaging just under 7 percent even though headline inflation has pushed past the 4-percent ceiling targeted by the BSP.

“Real GDP growth is projected at just under 7 percent over the medium term. Inflation is projected to gradually fall to under 4 percent in 2019 and move toward 3 percent over time. The current account deficit is projected to remain manageable, financed largely by foreign direct investment.

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