Philippine economy could overheat: IMF – 8 Aug 2017

  • The International Monetary Fund has flagged overheating risks for the Philippine economy, which is nonetheless, forecast to grow slower in 2017, albeit still within target.
  • “The combination of rapid credit growth, buoyant private investment and fiscal expansion could lead to overheating,” the multilateral agency said in a statement concluding its annual review of the economy.
  • For 2017, the IMF trimmed its growth forecast for the Philippines to 6.6% from 6.8% previously. IMF’s outlook remains within the government’s growth target of 6.5 to 7.5% for 2017. For 2018, growth could pick up to 6.8%, below the 7-8% goal.
  • Risks against growth also exist externally from a slowdown in China, tightening credit conditions in the US to rising protectionism that could derail trade. Inflation, meanwhile, could end up at “the center of the target band” of 2 to 4%, making current monetary policy stance “appropriate.” As of Jul 17, inflation hit 3.1%.
  • On the supply side, the IMF calls for the passage of the first tax reform bill currently pending at the Senate “to expand the productive capacity of the economy.” This, it said, will help ensure resources are available to finance the Duterte administration’s ambitious PHP8tr infrastructure agenda, while keeping the budget deficit in check, and thus avoiding large debts.
  • IMF also called on the government to end rice import limits “to help reduce consumer prices and poverty,” while supporting farmers that will be affected. President Rodrigo Duterte has extended for three years the cap on rice shipments, in place for more than a decade now, meant to protect local farmer produce against cheaper imports. This, in turn, has led to high rice prices.

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