Phl needs more investments - IMF

WASHINGTON – The Philippine economy will grow faster in the next two years on the back of strong domestic consumption and remittances, the International Monetary Fund (IMF) said.

But the country will remain a laggard in the years to come compared with other Southeast Asian nations, highlighting the need for public and private sector investments, an IMF official told The STAR Tuesday.

Gross domestic product (GDP) for the Philippines is forecast at 4.2 percent this year and 4.7 percent next year, the IMF said in the April issue of the World Economic Outlook (WEO).

“The Philippines’ growth is projected to increase to 4.2 percent from 3 percent last year,” Abdul de Guia Abiad, deputy division chief of the World Economics Studies Division of IMF, said in a briefing.

“There are various factors behind that. This is occurring in an environment where global growth is pretty weak. What is supporting growth is basically strong domestic demand, strong government consumption, remittances and the implementation of various public-private partnerships (PPPs).”

In December, IMF pegged the country’s growth at 4.2 percent for 2012.

Growth in GDP – the value of goods and services produced by the economy – hit 3.7 percent last year, slower compared with the 7.6 percent record in 2010, given a decline in public construction.

It is short of the government’s 5-6 percent target and 4.5-5.5 percent forecast.

The IMF said the forecast might be cut depending on external factors.

“In terms of risks... the main risk externally is a reintensification of the Euro area crisis,” Abiad said.

The IMF said the Association of Southeast Asian Nations’ (ASEAN) economy will likely grow by 5.4 percent this year and a faster 6.2 percent in the next, up from 5.2 percent and 5.6 percent in the January WEO update.

But the Philippines will remain a laggard in the coming years compared with the ASEAN-5 bloc that includes Indonesia, Malaysia, Thailand and Vietnam, the IMF added.

The IMF said Indonesia will grow the fastest this year at 6.1 percent, while Thailand’s uptick next year will be the fastest at 7.5 percent.

The Malaysian economy is seen to expand by 4.4 percent and 4.7 percent for 2012 and 2013.

“You are not going to see a sudden increase in the growth rate of the Philippines,” Abiad told The STAR.

“A lot of this requires structural reforms to increase the potential rate of growth.

“In terms of the Philippines’ performance relative to its neighbors, a key element is basically strengthening investment, both infrastructure investment by the public sector, and also improving the business climate so the private investment strengthens.”

The government is into the “daang matuwid (straight path)” good governance housecleaning campaign to prevent corruption and red tape.

“The present administration is doing a lot of the right things in terms of public finance management,” Abiad said.

Meanwhile, Abiad said the country’s monetary policy “has been conducted in a good manner.”

The Bangko Sentral ng Pilipinas (BSP) cut interest rates by a total of 50 basis points this year given manageable inflation and timid economy.

Overnight borrowing and lending rates are at a record low of four and six percent.

The policy-making Monetary Board is scheduled to review policy rates on April 19.

Meanwhile, IMF said inflation might average 3.1 percent this year and 4.1 percent in the next.

The BSP’s average inflation forecast is 3.1 percent this year, within its 3-5 percent target range.

For global output, IMF said it is seen to grow by 3.5 percent and 4.1 percent in 2012 and 2013, from 3.3 and 3.9 percent in the January WEO update and four and 4.5 percent forecast in September last year.

“Our baseline forecast... is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present,” said Olivier Blanchard, economic counselor and director of the IMF’s Research Department.

“Our baseline is constructed on the assumption that another European flare-up will be avoided, but that uncertainty, especially in Europe, will linger on.”

The 17-member Euro zone is hampered by a debt crisis in members like Greece, Spain and Italy.

For the entire Europe, IMF expects a slight growth of 0.2 percent and 1.4 percent this year and the next.

“Our forecast for continued strong growth was somewhat lower than in the past,” Blanchard said.

“For mainly, changes come from the outside like low exports, volatility of commodity prices and high volatility of capital flows.”