Multilateral lenders expect the Philippines to post growth this year, but at a slower rate than previously anticipated following the recent surge in COVID-19 infections across Southeast Asia.
The World Bank, the International Monetary Fund, the Asian Development Bank and the ASEAN+3 Macroeconomic Research Office tempered their GDP projections for the Philippines this year, taking into account the impact of the quarantine restrictions enforced by authorities to contain the surge in new cases.
Early in June, the World Bank cut its previous 5.5-percent growth projection for the Philippines this year to 4.7 percent. It also cut its 2022 growth forecast for the Philippines to 5.9 percent from 6.3 percent, and the 2023 forecast to 6 percent from 6.2 percent.
Meanwhile, the Asian Development Bank expects the Philippines to grow 4.5 percent in 2021 and 5.5 percent in 2022.
“Sustained government spending on infrastructure and social assistance programs is supporting recovery, as did a gradual pickup in household spending aided by strong remittances,” the ADB said in its Asian Development Outlook 2021 report.
The Washington-based IMF also adjusted its growth forecast for the Philippines this year to 5.4 percent from 6.9 percent previously, saying the surge in new COVID-19 cases could slow economic recovery.
An IMF team led by Thomas Helbling conducted virtual discussions with the officials of Bangko Sentral ng Pilipinas, the economic cluster of the government and other public and private sector representatives about the Philippine economy for the 2021 Article IV Consultation from May 21 to June 11, 2021.
Helbling said, however, the IMF raised its 2022 growth forecast to 7 percent from 6.5 percent. For 2022, Helbling said the new 7-percent GDP forecast was anchored on the expectations of further reopening of the economy amid the faster rollout of COVID vaccination program, more business activities and more investments on the government side which could result in higher multiplier effect.
Helbling said the uncertainty around the pace of the economic recovery was high, and the balance of risks to economic activity was tilted toward the downside. He said supply constraints could lead to delays in vaccinations, which in turn would increase the risk of virus resurgence after the recent second wave and tightening quarantine measures.
It could also amplify the effect of external shocks, such as rising global interest rates and inflation, that would constrain the monetary policy response and raise financing costs for the public and private sector.
He said a reinvigorated infrastructure push with greater private sector participation and a stronger global recovery could help accelerate growth.
“For the recovery to take hold, monetary policy should remain accommodative. While the recent spikes in inflation should be closely monitored, the present monetary policy setting is appropriate as the current inflation pressure appears to be temporary and is likely to taper off in the second half of the year,” Helbling said.
He said the timely implementation of fiscal support—with flexibility to address evolving priorities—is crucial for continued recovery.
The IMF said to rekindle investment and revert to its strong pre-pandemic growth rates, the Philippines should maintain the momentum of structural reforms. Important progress has been made on many fronts, such as tax reform, digital payments, cutting red tape and climate mitigation and adaptation, it said.
However, sustained efforts will be needed to reduce restrictions on foreign investment, fast-track the rollout of the national ID, scale up social protection, strengthen healthcare and education and implement climate change commitments. Julito G. Rada
Helbling said these reforms would help the Philippines build back better and position the country for a more equitable and greener future.
Meanwhile, the Asean+3 Macroeconomic Research Officeslashed its 2021 growth forecast for the Philippines to 6.4 percent from its previous estimate of 6.9 percent, as the resurgence of new COVID-19 infections pose a downside risk to growth in the coming months.
Dr. Hoe Ee Khor, AMRO chief economist, said in an online briefing on the AMRO Annual Consultation Report on the Philippines that it was imperative for the government to ramp up the rollout of vaccination program to make economic recovery faster.
“It is urgent… The government needs to ramp up the vaccination in the second half [of the year],” Khor said.
Khor said local monetary authorities’ decision to maintain the current policy stance was “appropriate” amid the continuing global pandemic.
“Ramping up the vaccination rollout will make the economy recover faster, and business and consumer confidence will be restored,” he said.
