MANILA, Philippines - Multilateral lender International Monetary Fund (IMF) believes the Philippines has the capability to survive the impact of the fragile economic growth in advanced economies led by the US as well as the sovereign debt crisis in Europe.
IMF deputy managing director Naoyuki Shinohara said in an interview with reporters that the strong external payments position would give the Philippines enough room to maneuver.
“There is no way you can avoid the impact of the slowdown of the European and US economy. Fortunately, the Philippine government has large room to cope with the situation, both in fiscal and monetary policy areas,” Shinohara stressed.
He cited the strong external payments position of the Philippines particularly the country’s gross international reserves (GIR) and balance of payments (BOP) position.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that the country’s GIR jumped 32.6 percent to $75.814 billion in the first 10 months of the year from $57.153 billion in the same period last year on the back of the revaluation of the central bank’s gold holdings as well as strong earnings from its investments abroad and foreign exchange operations.
The GIR – the sum of all foreign exchange flowing into the country – is enough to cover 11.2 months worth of imports of goods and payments of services and income as well as 10.6 times the country’s short-term external debt based on original maturity and 6.4 times based on residual maturity.
The BSP originally saw the GIR hitting a new record level $63 billion and $64 billion but was later revised to range of $68 billion and $70 billion.
On the other hand, the BOP surplus jumped 166 percent to $9 billion in the first eight months of the year from $3.381 billion in the same period last year breaching the revised full-year target of $6.7 billion on the back of the strong capital inflows into emerging market economies.
The BOP refers to the difference between foreign exchange inflows and outflows on a particular period and represents the country’s transactions with the rest of the world.
Authorities see the country’s BOP surplus hitting $6.7 billion from a record level of $14.4 billion last year.
“The external position is much stronger than before with large foreign reserves and stronger BOP. So the government here needs to be careful about possible impact of the global slowdown but at the same time I think they have enough room to respond to these situations,” he explained.
He pointed out that the Philippines would be affected in terms of its balance of trade as both the US and European countries are major destination of Philippine-made products and are major sources of imports.
“In that extent, the Philippine economy will be hit by the slowdown of growth in those regions as well. As for the financial channels, we have seen in the recent months the decline in equity prices and exchange rate appreciation,” Shinohara said.
Weak global trade and underspending by the Aquino administration pulled down the country’s gross domestic product (GDP) growth to four percent in the first semester of the year from 8.7 percent in the same period last year.
This prompted the Cabinet-level Development Budget Coordination Committee (DBCC) to scale down its GDP growth forecast anew to 4.5 percent to 5.5 percent instead of the revised five percent to six percent this year.
“The growth has slowed down a little bit this year mainly because of the global economic slowdown and the subsequent slowdown in exports as well as the cautious fiscal expenditure. But overall, the Philippine economy is doing well,” Shinohara stressed.
The IMF recently downgraded the GDP growth forecast for Asia to 6.3 percent instead of 6.8 percent this year and to 6.7 percent instead of 6.9 percent for next year in line with the weaker global outlook. The lender lowered the GDP growth forecast for the Philippines to 4.7 percent instead of five percent this year and to 4.9 percent instead of five percent for next year.
According to him, the multilateral lending agency believes there is no “quick fix” of the issues involving the US as well as countries in Europe.
The IMF official said the agency supports the efforts of the Philippine government to trim the budget deficit to two percent of GDP starting 2013 until the end of the term of President Aquino in 2016.
“On the fiscal side, it is important that they maintain prudence in policy management. We support the policy goals of the Philippine government in that issue. Of course they need to work on improving infrastructure, safety nets like education, they should come from stronger tax administration and through revenue raising measures,” he said.