IMF Statement at the Conclusion of Staff Visit to the Philippines
At the conclusion of the visit, Mr. Sumi issued the following statement:
“The Philippine economy has performed remarkably well in the face of a weaker external environment and global financial turbulence in 2015. Despite a large drag from net exports, real GDP growth remained robust in 2015 at 5.8 percent, reflecting a strong pickup in private investment and public construction through the year. Real GDP growth is projected at 6.0 percent in 2016 and 6.2 in 2017, driven by continued strong domestic demand offsetting weak net exports. The unemployment rate has fallen to a decade’s low of 5.3 percent, but significant under-employment remains. Inflation fell to 1.4 percent in 2015, below the inflation target range (2–4 percent), due to lower food and fuel prices. Inflation is expected to rise to 2 percent in 2016 as commodity prices stabilize.
“The external and fiscal positions remain comfortable. Despite a sizable decline in the fuel import bill and continued strong business process outsourcing inflows, the current account surplus is estimated to fall to 3.0 percent of GDP in 2015 (from 3.8 percent in 2014) due to sluggish exports and remittances, and is likely to narrow further in 2016. The peso depreciated against the U.S. dollar in 2015, but by less than other regional currencies. The budget deficit will come below the 2.0 percent of GDP target in 2015 due to slow budget execution early in the year and the public debt ratio declined further.
“The economic outlook is favorable but subject to increased downside risks, including lower growth in China and the region, higher global financial volatility and capital outflows, and weather related disruptions. However, the Philippines’ capacity to respond if these risks materialize is substantial given its ample reserves and policy space, both monetary and fiscal. Credit growth slowed to 13.1 percent in 2015 and is supportive of financial stability and sustainable growth as private credit to construction and real estate has moderated.
“Monetary policy has remained on hold since late 2014 with the continued strength of domestic demand and inflation falling below the target range due to temporarily lower commodity prices. Monetary conditions remain supportive of growth while fiscal policy is focused on the medium-term objectives of supporting inclusive growth and infrastructure investment. With the deficit at 2.0 percent of GDP, the 2016 budget will provide a modest fiscal stimulus and is consistent with a declining public debt ratio. Going forward, a continued focus on raising tax revenue would be important to address the large infrastructure and social needs.
“Over the medium term, a continuation of prudent macroeconomic policies and good governance would be critical to sustain investor confidence and the growth momentum. To support growth, structural reforms will also be needed to address structural issues centering around the low rate of national investment, opening up the economy to greater competition and foreign investment, and high rates of poverty and inequality.
“The 2016 Article IV consultation mission is planned to visit Manila in June–July 2016.”