The International Monetary Fund recalibrated the country’s likely growth path this year, seen averaging at a slower 6.5 percent in terms of the gross domestic product, a slight downtick from a previous 6.7 percent outlook.
This developed in the wake of an earlier event in which the IMF’s sister organization, the World Bank, kept the country’s local output growth unchanged at 6.7 percent.
“The reason is that second-quarter GDP growth outturn was below expectations,” IMF resident representative Yongzheng Yang told reporters at a briefing on Friday.
He announced the recalibrated forecast expansion of the Philippines at the conclusion of the IMF’s so-called Article Four consultative meetings on Friday.
Yang said that despite inflation and other risks, the economy continues to perform well although it is facing new challenges.
He explained that since growth posted the previous quarter was lower, the annual average growth rates should also be lower.
“There is nothing dramatic with this lowered forecast,” according to Yang who said the previous quarter economic slowdown was “temporary and transitionary.”
According to the IMF, real GDP growth is projected to grow strongly in 2018 and 2019, supported by domestic demand.
“However, poverty and inequality challenges remain, inflation has risen, and external uncertainty has increased,” the IMF said.
Further, it said the economic outlook for the medium-term remains positive although short-term risks increased.
Yang said the IMF strongly recommends for the government to identify non-priority expenditures to be cut-off such as the special purpose funds which really doesn’t serve a specific purpose.
“The government can look through the funds (special purpose funds) to see which area they will focus on in [their] strategic investment,” he explained.
In addition, he said the authorities should consider to maintain a neutral fiscal stance by containing non-priority spending and intensifying tax collection efforts to prevent so-called overheating and to avoid overburdening the monetary sector and maintain the sustainability of strategic goals.
The IMF also supports the recent 50 basis point rate hike by the BSP as it recommends the continued tightening cycle on the monetary policy.
“The purpose of tightening the monetary policy anchors inflation expectations [and] it will help [tame] [the] second round effects of inflation,” Yang said.
According to him, the IMF believes the central bank is committed to price stability and that it takes inflation seriously as it continues to safeguard price stability.
Likewise, the IMF also supports the ongoing tax reform program, the so-called second package in particular as this will rationalize the various tax incentives and create a more level playing field for corporations hence, making an important reform.
“Research shows that reforms of this nature can generate long-term benefits [for] the country,” Yang said.