Much respect is accorded to the views and forecasts of the resident representative (Res Rep) in this country of the International Monetary Fund. That is because the Res Rep is always a well-trained economist who has served at IMF headquarters in Washington D.C. and who keeps himself well-informed on all developments that affect the performance of the Philippine economy.
The individuals assigned to the Philippines as Res Rep came from different countries. The current Res Rep is an Indian, Shanaka Jayanath Peiris. Because the agency with which IMF works most closely is the Bangko Sentral ng Pilipinas, the office of the IMF Res Rep historically has been within the premises of BSP.
The IMF Res Rep regularly makes three-year forecasts for the Philippine economy’s performance, represented by the annual growth of the gross domestic product. Mr. Peiris recently issued his forecast for the GDP’s growth in 2017, 2018 and 2019.
Mr. Peiris has raised his forecast for Philippine GDP growth in 2017 to 6.8 percent; his previous forecast was 6.7 percent. This compares with the Development Budget Coordination Committee’s growth target of 6.5 percent to 7.5 percent. The Philippine Statistics Authority placed the GDP’s 2016 growth at 6.8 percent.
Mr. Peiris has premised his forecast for 2017 GDP growth principally on two factors, namely, higher public-sector spending and a recovery in Philippine export trade. “The Philippines is expected to maintain [into 2017] the strong growth momentum registered in 2016, at a pace of about 6.8 percent, supported by fiscal stimulus as the budget deficit widens towards the 3 percent of GDP target…. Exports are expected to recover, reflecting the pick-up in global growth and in commodity prices,” said Mr. Peiris.
Of the two 2017 GDP growth drivers identified by Mr. Peiris, higher government spending clearly is the more important. The IMF’s man recognizes this: “(T)he passage of the administration’s tax reform program …. would be important to continue to raise public infrastructure investment and social spending to benefit from the demographic dividend,” he said.
Mr. Peiris’s sentiment regarding the tax reform program have been echoed by the Secretary of Finance. “(S)ustaining economic growth will be a challenge if the Comprehensive Tax Reform Program will not push through,” said Carlos Dominguez III. Funding the Duterte administration’s ambitious infrastructure program by raising sufficient revenues (beginning 2017), rather than relying on borrowing, is necessary to keep the budget deficit within the manageable level of 3 percent of GDP, the Secretary has said.
Secretary Dominguez has gone on to warn about the dire consequences of a breach of the 3 percent of GDP debt service ratio. “Without tax reforms, the 3 percent of GDP (level) would be breached, leaving the country susceptible to an unsustainable fiscal position, which could lead to a credit rating downgrade to below investment grade,” the Secretary has said. He believes that the non-passage of the tax reform package that is now before Congress will have sire consequences …. for our hard-earned gains in improving (this country’s) macro-economic fundamentals.
From Mr. Peiris’ description of the Philippine economy’s 2017 growth prospects and Secretary Dominguez’s statements on the importance of funding the government’s infrastructure program with tax revenues, it is clear that speedy Congress has to act in a speedy manner on the Comprehensive Tax Reform Program; otherwise, Mr. Peiris’ 6.8 percent GDP growth forecast will be very difficult to achieve.
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