IMF sees 2.5% growth for RP

The International Monetary Fund (IMF) has further scaled down its growth projections for the Philippines from three percent to 2.5 percent this year as the global economy continues to slow down.

IMF managing director for the Philippines Sean Nolan said the lower growth forecast in terms of gross domestic product (GDP) was revised even before the Sept. 11 terrorist attacks on the US.

Earlier, the IMF also revised its forecast for global growth to 2.6 percent this year, lower by 0.6 percentage point from its original forecast in May. Among the advanced economies, growth in the US was projected at 1.3 percent, 0.2 percentage point lower while Japan’s growth is seen to decline further by 0.5 percent, one percentage point lower than earlier projected.

Nolan said prospects for growth in the Philippines along with emerging markets in Asia were downgraded as industrial production and exports slowed down sharply because of the downturn, especially with the weakening of the technology sector in major export markets such as the US and Japan.

"The Philippines is facing challenging external environments," Nolan said, citing the increased global economic and financial market uncertainty following the US attacks, the possibility of a prolonged downturn in the US, a lagging recovery in the technology sector, as well as the weakening outlook for Japan, the world’s second biggest economy.

Citing the IMF’s October 2001 World Economic Outlook, Nolan said further deterioration in external financial conditions could create difficulties for some regional economies, notably the Philippines.

The IMF said adding to the Philippines’ vulnerability is the weakness of the banking system and the corporate sector.

Of particular concern to the IMF is the country’s growing budget deficit which this year is projected at P145 billion.

The IMF said the government and even the Bangko Sentral ng Pilipinas (BSP)’s ability to stimulate the economy through pump-priming has been weakened considerably by a sizeable fiscal deficit.

"In the Philippines, the room for maneuver is constrained by high levels of government deficit or debt," the IMF said.

The BSP’s monetary policy is also constrained because it has to watch inflation while keeping interest rates low.

Nolan said that for the country to stay on track on the road to economic recovery , the government should stick to its fiscal targets and move ahead with its reform agenda.

He said the Philippines would have had a better coping mechanism had it paid attention to improving its economic fundamentals after the Asian financial crisis in 1997, such as large current account surpluses, higher reserves, reductions in short-term external debt, and widespread adoption of flexible exchange rates.

The large deficit, for instance, was accumulated during the normal times, Nolan said.

The IMF said the task for policymakers, both in advanced and in developing countries, would be, among others, to have an aggressive monetary policy response following the attacks on the US.

For emerging markets like the Philippines, government should provide the stimulus, relying more on internally generated growth and press ahead with structural reforms.