MANILA, Philippines - The International Monetary Fund (IMF) retained the country’s growth forecasts at five percent this year and next year despite the economic slowdown in the first quarter of the year but cited the need to improve the tax base in the Philippines even without the introduction of new tax measures.
In a press conference, IMF mission chief Vivek Arora said the Philippines would likely post a fivwe percent expansion in its gross domestic product (GDP) this year and next year as growth would likely pick up in the second half after slowing down in the first half.
“Consistent with the global outlook, the staff expects economic activity to pick up again in the second half of the year and growth to average five percent in both 2011 and 2012,” Arora stressed.
The country’s GDP growth slackened to 4.9 percent in the first quarter of the year from the revised 8.4 percent in the same quarter last year due to the weak global trade and government underspending.
Arora pointed out that the GDP growth appeared to have further slowed down in the second quarter of the year in light of the disasters that struck Japan.
“GDP growth appears to have eased in the first halfof 2011, owing to lower export growth that partly reflected supply disruptions from the Japan earthquake and to a temporary dip in public expenditure as the government puts in place important reforms to enhance expenditure quality,” he added.
The Cabinet-level Development Budget Coordination Committee (DBCC) has set a GDP growth target of between seven percent and eight percent this year and next year.
The Philippines posted its strongest economic growth in 34 years after its GDP growth zoomed to 7.6 percent last year. It was on the verge of a recession in 2009 after its GDP growth slackened to 1.1 percent from 3.8 percent in 2008.
Arora said the recovery phase has been managed well with a gradual withdrawal of policy stimulus and the initiation of reforms to address long-standing constraints to growth.
“As a result, the near-term outlook for the Philippines is favorable, characterized by moderating but still rapid growth,” he added.
According to Arora, the fragile economic environment remains a key risk to outlook as monetary authorities need to carefully manage the strong capital inflows in order to avoid macroeconomic and asset price volatility.
Arora said members of the IMF staff mission for the 2010 Article IV Consultations believe that the country’s inflation would remain with the target range of three percent to five percent for this year and next year set by the Bangko Sentral ng Pilipinas (BSP).
“Inflation is expected to remain within the target this year and next year, and the balance of payments to remain in surplus,” he said.
It pointed out that the BSP has handled the crisis very well and was able to contain inflation at low levels through a combination of policy rate hikes as well as the lifting of liquidity enhancing measures as early as last year.