Philippines should strive for broad-based prosperity, says IMF
Tokyo
DESPITE recording strong economic growth in recent years, the Philippines has the potential to do even better and build a more inclusive, less impoverished society, particularly in the context of Asean economic integration, the International Monetary Fund (IMF) said on Wednesday.
It suggested in a report: "This path to greater, broad-based prosperity depends crucially on stepping up investment, including in infrastructure and in young people, creating much-needed employment opportunities for the fast-growing population."
Meanwhile, the outlook for the economy remains favourable, despite uneven and generally weaker global growth prospects. Real gross domestic product (GDP) is projected to grow by 6.7 per cent this year, as lower commodity prices lift household consumption and improved budget execution raises public spending.
The report follows the annual Article IV consultation between senior IMF officials and representatives of the Bangko Sentral ng Pilipinas, the country's secretaries of Finance, of Budget and Management and the National Economic and Development Authority, along with private-sector representatives.
The IMF suggested that boosting productive investment will require a renewed emphasis on structural reforms, entailing, for example, further opening up of the economy to increased competition, strengthening public-finance management and implementing an ambitious and inclusive financial -development strategy.
"To support job creation and poverty reduction, we strongly encourage the authorities to resolve uncertainties with the use of agricultural land titles as collateral for bank loans."
The Philippine authorities also need to "improve urban and regional connectivity, reform the National Food Authority and ease quantitative restrictions on rice imports; they should also reduce skill mismatches by expanding education and apprenticeship programmes, the IMF report suggested.
Net exports from the Philippines are projected to soften due to sluggish trading partner growth and real exchange rate appreciation, the IMF noted. "Growth is projected at 6.3 per cent in 2016 as the one-off fiscal impulse and oil price stimulus in 2015 are expected to wane.
"Lower import prices should help keep inflation in the lower half of the target band, picking up in 2016 as oil prices rise. The current account surplus is expected to exceed 5 per cent of GDP this year, due to lower oil prices and inflows from business-process outsourcing and remittances."
The report said that an upside risk for the economy was a stronger lift to demand from lower commodity prices; on the downside, disruptive asset price shifts due to the asynchronous monetary policies in advanced economies were a risk, but the country's strong fundamentals should provide the necessary cushion.
"On the domestic front, any resurgence of strong credit and construction growth could give rise to financial stability risk. Continued weak budget execution could also slow down improvements in infrastructure.
"Finally, there is a downside risk associated with El Nino conditions leading to a poor harvest and a rapid run-up in food prices.
"The Philippine authorities have undertaken pre-emptive measures and continue to be prepared to respond as needed with suitable policies, should any of these risk scenarios materialise."
Fiscal policy should focus on supporting infrastructure investment and inclusive growth, the IMF report added.
"The 2015 budget envisages returning to the government's medium-term deficit target of 2 per cent of GDP by increasing public infrastructure spending and implementing the much-needed reconstruction and social spending in the wake of Typhoon Yolanda.
