MANILA – The International Monetary Fund (IMF) remains optimistic on the Philippine economy’s output in the near term amid the recent cut of its 2017 growth forecast to 6.6 percent from 6.8 percent.
Luis E. Breuer attributed this to the slower domestic expansion in the first quarter of 2017 at 6.4 percent from quarter-ago’s 6.6 percent and year-ago’s 6.9 percent.
In a briefing Tuesday, the chief of the IMF Article IV Consultation on the Philippines Mission explained that the slower growth, as measured by gross domestic product (GPD), is understandable given the impact of election spending on the economy last year.
He pointed out that outlook for the domestic economy for the next three years remains strong at 6.8 percent. ”In general, we see the economy growing close to potential and that is very good,” he said.
GDP growth in the first quarter this year is below the government’s 7-8 percent full-year target but economic officials are optimistic of the full-year results.
Breuer is confident of the approval of the Duterte administration’s tax reform proposals, now pending in Congress.
He said the tax reform will generate resources that will be used for the administration’s priority programs on infrastructure investments and social services, among others.
It will also serve as an insurance against volatilities in the financial market, especially since the government targets to finance the construction of its infrastructure projects, pegged to amount to about P8-9 trillion until 2022, he said.
“It’s going to protect the confidence, the trust that the private sector, both domestic and international, have on the conduct of economic policies in the Philippines,” he said.
The IMF Mission chief said the reforms are important because these will also modernize the way funds are used.
He said reforms happen in every generation and it is high time that the Philippines experience one again. “We grant significant importance on this tax reform,” he said, citing his optimism that this will eventually be approved by senators.
The House of Representatives passed the first package of the proposed tax reforms on third and final reading last May. Once senators approve it, a copy will be submitted for a bicameral committee hearing, after which it is submitted to the President for signing into law.
“We hope the first phase of tax reform does produce an important downpayment on generating additional revenues to finance priority investments, infrastructure, social services, education, and healthcare,” he said.
“If we see broadly a tax reform that generates around two percentage point [of GDP] in all of its phases over the medium term, we would say that’s a very successful tax reform,” he said.
BSP Charter changes flagged
Meanwhile, the IMF official raised the need for the amendments in the Bangko Sentral ng Pilipinas’ (BSP) Charter, noting that these “will serve the Philippines well for many, many years.”
He said there is a need to modernize the legal framework that guides the actions of the central bank, both on supervisory functions as well as its mandate to ensure that inflation remains manageable.
“This new law or the amendments to the law provide a number of tools that are very important for BSP to catch up with rapidly changing economy,” he added.
“In addition, amending the bank secrecy law and anti-money laundering framework – to be more in line with international standards – would be important to maintain financial integrity and confidence,” the IMF said in a statement issued after the Article IV Consultation scheduled from July 26 to August 9, 2017.