The International Monetary Fund said Wednesday it reduced the 2021 growth forecast for the Philippines to 5.4 percent from 6.9 percent, taking into account the surge in new COVID-19 cases in April that could slow economic recovery.
An IMF team led by Thomas Helbling conducted virtual discussions with officials of the 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. The new projection was announced by Helbling in an online briefing Wednesday morning.
Helbling, however, said the IMF raised its 2022 growth forecast for the country to 7 percent from 6.5 percent it made in April 2021.
“We see a bit of slowing in the recovery in the first half of 2021 before the pickup in the second half of the year,” Helbling said.
“The slowdown in the recovery is due to the second wave of pandemic which peaked in April [that] triggered strict community quarantine measures... But we hope the second wave is on the way out...,” Helbling said.
Helbling said that for 2022, the new 7-percent growth forecast was anchored on 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.
“There is a bit of a mechanical element to it... some of strong rebound has just been delayed. If the economy starts from the lower base, it leads to higher growth..,” Helbling said.
The IMF Mission official statement said the Philippine economy was gradually recovering after the pandemic-induced economic downturn in 2020 and the rebound was expected to strengthen in the second half of 2021 and in 2022.
The GDP contracted by 9.6 percent last year, the worst since the end of World War 2.
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.
Hebling 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—was crucial for continued recovery.
“Maintaining financial stability and reviving credit growth will be critical to continued recovery. Liquidity and capital in the banking system have remained strong, as banks have benefitted from past reforms and policy support at the onset of the pandemic,” he said.
Helbling said the full impact of the pandemic had yet to manifest itself, and continued vigilance was needed to safeguard financial stability.
He said to avoid potential grey-listing by the Financial Action Task Force, it was urgent to continue strengthening the Philippines’ anti-money laundering and combatting the financing of terrorism regime.
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, he said.
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, according to the IMF.
Helbling said these reforms would help the Philippines build back better and position the country for a more equitable and greener future.