IMF: PHL economy to grow 5% in 2011

Multilateral lender International Monetary Fund (IMF) on Friday upgraded to 5 percent its 2011 growth forecast for the country’s gross domestic product (GDP) from an earlier forecast of 4.5 percent.

IMF mission chief Vivek Arora said in a press conference that the Philippines emerged well from the global financial crisis as strong financial liquidity and a sound financial sector helped cushion the economy against the worldwide economic crunch.

The IMF, however, decided to retain this year’s economic growth forecast to 7 percent.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s GDP growing by 5-6 percent this year and by 7-8 percent next year.

Arora said that the Aquino administration needs to sustain the recovery and strengthen the pace and quality of sustainable growth.

The government’s focus on governance and investment has resulted in high investor confidence and improved growth prospects, he added.

“Doing so will require preserving macroeconomic stability by carefully managing the exit from crisis-related stimulus policies in an environment that is complicated by large capital inflows and fragile global economic recovery, and moving ahead with reforms,” Arora said.

IMF said it already took into account the much-needed infrastructure projects under the public-private partnership initiative of the government in measuring the country’s economic growth forecast for next year.

Inflation

Meanwhile, Arora believes that the country’s inflation would remain within the target range of 3.5-5.5 percent for this year and 3-5 percent for next year as set by the Bangko Sentral ng Pilipinas (BSP).

“Inflation should remain at around 4 percent this year and the next,” he said.

The IMF acknowledged the BSP’s role in keeping inflation low while fostering economic recovery.

The multilateral lender reiterated that the central bank kept its key policy rates steady at record lows but lifted its crisis-related measures to support economic growth.

Since July last year, the policy-setting Monetary Board has placed the overnight borrowing and lending rates at 4 and 6 percent, respectively.

However, there is a need for monetary authorities to tweak its key policy rates as output gap is starting to close and prices are starting to rise in Asia, according to the IMF.

“With the narrowing output gap, it may be necessary to start normalizing the policy stance in the near term in order to forestall excess liquidity and inflation pressures. If the global environment were to worsen, or other downside risks materialize, the pace of policy normalization could be adjusted,” Arora pointed out.

The IMF underscored that rising capital inflows need to be carefully managed by the BSP in order to avoid asset price inflation and macroeconomic volatility.

Efforts toward fiscal consolidation

Arora is confident that the Philippines would be able to achieve its budget deficit ceiling of P325 billion or 3.9 percent of GDP this year despite the collection shortfall from the Bureau of Internal Revenue and the Bureau of Customs.

“The government’s efforts toward fiscal consolidation should help provide the budget with more space to respond effectively to future shocks. The authorities’ emphasis on strengthening tax administration is welcome and the [IMF] is committed to supporting these efforts with technical assistance,” Arora said.

He also stressed the need of the government to rationalize fiscal incentives, address tax distortions, and reform excise taxes, particularly in sin products such as alcohol and tobacco products. — JE, GMANews.TV