Two international financial institutions have given the Philippines a good housekeeping seal of approval. The separate endorsements from the International Monetary Fund and global debt watcher Moody’s Investors Service are a clear indication that the macroeconomic fundamentals of the Philippines remain solid despite the high inflation rate.
The IMF kept its 2018 growth forecast for the Philippines at 6.7 percent, although it warned that rising inflation and external developments such as the trade tension between bigger economies might threaten sustained expansion.
IMF mission chief Luis Breuer noted that the Philippine economy was performing well. Real GDP [gross domestic product] grew 6.7 percent in 2017, with his team predicting that rate will be sustained in 2018 and 2019, “underpinned by strong consumption and investment, including public investment.”
“The Philippines has been one of the region’s strong economic performers over the past years, reaping the fruits of prudent policies and critical reforms. The team welcomes the authorities’ strategy of maintaining policy continuity while adapting to emerging challenges and taking advantage of the strong economy to implement reforms to improve inclusive growth and job creation. This strategy has served the Philippines well,” says Breuer.
Moody’s shared the same observation. Strong GDP growth, it said, could accelerate even further, especially if the government achieved higher spending on infrastructure. It also expects further progress “on improving government revenue on the back of additional reforms and ongoing enhancements in tax administration, which would also help keep government debt stable.”
“The credit profile of the government of the Philippines [Baa2 stable] is supported by a large and fast-growing economy and continued gains in debt affordability, in part because of revenue reforms,” the rating agency said.
The support from the two financial institutions validated the painful reforms the Philippines implemented in the past to keep the economy afloat. The expanded value-added tax during the term of former President Gloria Macapagal Arroyo and the business-friendly policies during the time of ex-President Benigno Aquino III cemented the gains of the economy. President Rodrigo Duterte’s ‘Build, Build, Build’ program and the recent tax reform package that Congress passed are making the economy stronger.
The government now faces the challenge of creating the trickle-down effect to make the economic gains inclusive to the poor and the marginal sectors.