The International Monetary Fund yesterday made changes to its growth forecasts for the country but maintained the Philippine economy is gradually recovering after the pandemic-induced economic downturn last year.
The IMF Article IV Consultation team led by Thomas Helbling said that the country’s real gross domestic product (GDP) is now projected to grow by 5.4 percent in 2021, more than a percentage point lower than the IMF’s earlier forecast of 6.9 percent.
However, for 2022, IMF revised higher by 50 basis points its earlier forecast from 6.5 percent to 7 percent.
Helbling said the IMF team saw “a bit of slowing in the recovery in the first half of 2021 mostly due to the second wave of the pandemic, which peaked in April, and resulted to some strict quarantine measures.”
“But now hopefully the second wave should be on the way out… What’s really at the core of the forecasts, the assumption that the health situation improves, which will allow for economic reopening and also build confidence,” Helbling said.
The IMF team said it saw in the Philippines “the main drivers also present in other countries.”
“There is of course the impetus from a strong global economy, but (the drivers are) more domestically. There’s continued strong domestic policy support and quite sizable fiscal impulse this year. The recovery that began in the third quarter of 2020 should gain momentum,” Helbling said.
He added authorities have deployed “a comprehensive policy support package” to address the sharp economic downturn following the strict containment measures imposed.
“The policy support mitigated the hardship suffered by affected families and businesses and helped safeguard macro-financial stability,” Helbling said.
However, Helbling said uncertainty around the pace of the economic recovery is high, and the balance of risks to economic activity is tilted toward the downside.
“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.
Also, it could 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,” Helbling said.
“A reinvigorated infrastructure push with greater private sector participation and a stronger global recovery could help accelerate growth,” Helbling added.
Helbling stresseda timely implementation of fiscal support–with flexibility to address evolving priorities–is crucial for continued recovery.
“The fiscal deficit targeted in the 2021 budget provides significant stimulus to economic activity, but given the imperative to beat the virus and the continued difficulties faced by vulnerable families and businesses, more resources could be needed. Such resources should aim to bolster the healthcare system to accelerate vaccinations, strengthen capacity for testing, tracing, isolation, and treatment, and support affected families and businesses.
A medium-term fiscal strategy should underpin the eventual rebuilding of fiscal space,” Hlbling said.
To rekindle investment and revert to its strong pre-pandemic growth rates, Helbling said the Philippines needs to fast-track the rollout of the national ID, scale up social protection, strengthen healthcare and education, and implement climate change commitments.
On the financial sector side, the team noted 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.
However, the team stressed the full impact of the pandemic is yet to manifest itself, and continued vigilance is needed to safeguard financial stability.
Among the team’s other recommendations include maintaining financial stability and reviving credit growth, continuing the momentum of structural reforms, and sustaining the efforts to reduce restriction on foreign investment.
“These reforms will help the Philippines build back better and position the country for a more equitable and greener future,” Helbling said.
The team also noted that for the recovery to take hold, monetary policy should remain accommodative.
While the recent spikes in inflation should be closely monitored, Helbling also noted that 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.”
The policymaking Monetary Board last month decided to keep the key rates of the Bangko Sentral ng Pilipinas steady. Analysts said any expectations for a reversal in policy stance “appear unjustified for now” as the economy is clearly in need of more stimulus and not less.
