IMF turns positive on RP

Recession ruled out; higher growth seen in 2010

MANILA, Philippines – Saying it had underestimated the Philippines’ productivity potential, the International Monetary Fund raised its economic projection for the country to a growth of 1 percent this year, a turnaround from the earlier forecast of a 1-percent contraction.

The IMF said the Philippines was no longer poised to fall into a recession given the continued growth in remittances from overseas Filipinos, which should support consumption, and the stimulus programs of the government.

For 2010, the IMF expects the country to grow 3.2 percent as the export sector will benefit from a recovery in global demand for electronics, the Philippines’ major export product, and other goods. The latest growth projection for 2010 is higher than the previous estimate of 2.25 percent.

The IMF earlier said the Philippines would likely contract this year because of the ill-effects of the global economic downturn. Besides weakening exports, a drop in remittances was also anticipated given the layoffs in recession-afflicted industrialized countries.

True enough, exports turned anemic this year because of dwindling global demand for non-essentials like electronic items. However, remittances managed to grow despite the turmoil. Demand for Filipino labor continued to rise in alternative markets, offsetting the impact of the layoffs in other countries.

The IMF expects remittances to expand 4 percent this year from last year’s $16.4 billion.

The IMF said remittances would help the country post a balance-of-payments (BOP) surplus of $4.9 billion this year, a stark increase from last year’s $89 million. The BOP records of the country’s commercial transactions with the rest of the world.

Supporting its revised growth forecast, the IMF said the government’s pump-priming initiatives would help boost growth. The national government allowed a much higher budget deficit this year to accommodate more spending for social services and infrastructure. The deficit ceiling for the year was set at P250 billion, much higher than last year’s actual deficit of P68.1 billion.

Meanwhile, the Bangko Sentral ng Pilipinas implemented a series of policy rate cuts to influence banks to bring down their lending rates, thereby encourage borrowings that eventually support consumption and investments.

“The Philippines has been able to weather the global financial storm well due to past reforms,” said Denis Botman, IMF resident representative to the Philippines.

“The BSP ensured a healthy flow of liquidity and monetary conditions. In the area of public finance, the improved fiscal position has helped reduce sovereign risk and created space for fiscal stimulus,” Botman added.

The IMF official said the Philippines would post better growth next year with rebound of the export sector, adding that remittances would grow much faster in 2010 than this year. –Michelle Remo, Philippine Daily Inquirer