The International Monetary Fund said it expects the Philippine economy to post the fastest growth among major Southeast Asian economies this year and next, as strong macroeconomic fundamentals will likely weather the impact of external headwinds.
The multilateral lender said gross domestic product growth could be stronger at 6.9 percent next year. The forecasts for the Philippines in 2017 and 2018 are expected to be the highest among Asean-5 economies, which include Indonesia, Thailand, Malaysia and Vietnam.
“Growth is projected to remain robust at 6.8 percent in 2017 and 6.9 percent in 2018, led by strong domestic demand and a recovery in exports,” IMF said in a statement after the release of the latest World Economic Outlook.
“Spillovers from lower growth in China or higher global financial volatility should be manageable for the Philippines due to its strong economic fundamentals, ample policy space, and limited trade and financial linkages with China,” it said.
The IMF said the Philippines could be affected more strongly if the growth of the region slowed. It said the impact from the tightening of US monetary policy would depend on the extent to which it was driven by stronger US growth.
“Protectionist policies in advanced economies would have an overall negative impact in Asia including the Philippines but the magnitude of impact and channels would depend on the specific policies that are still uncertain,” it said.
It said higher commodity prices would result in faster inflation at 3.6 percent in 2017 and 3.3 percent in 2018, although still within Bangko Sentral ng Pilipinas’ target range of 2 percent to 4 percent.
IMF said public spending was expected to rise as the fiscal deficit target was increased to 3 percent of GDP in 2017 and provide a stimulus to economic activity.
“The external position of the Philippines will continue to be comfortable with ample international reserves and the lower current account surplus related to higher capital goods imports and investment,” it said.
The IMF said the fiscal policy correctly focused on more inclusive growth by increasing social and infrastructure expenditure, financed with additional borrowing and higher revenue.
It said the tax reform proposal covering personal income tax, VAT and excises would be critical to finance the additional spending and preserve the low borrowing costs.
“We also support the authorities’ initiatives to improve the conditional cash transfer program, raise investment in education and health, and increase agricultural productivity by removal quantitative restrictions on rice imports and promoting secure land titles in agriculture which could be used as collateral for bank loans,” IMF said.
The World Bank said last week the Philippine economy would expand by close to 7 percent in the next three years and remain one of the top performers in the region. World Bank lead economist for the Philippines Birgit Hansl said growth was seen at 6.9 percent in 2017 and 2018 and 6.8 percent in 2019.
She said the government’s commitment to further increasing public infrastructure investment was expected to sustain the country’s growth momentum through 2018 and reinforce business and consumer confidence.