Saturday, October 14, 2006 RP economy remains ‘vulnerable’ to shocks
MANILA - The country’s economy remains vulnerable to market shocks and must pursue tight fiscal management to avoid this, the International Monetary Fund (IMF) said yesterday.
In a mid-year, post-program monitoring report on the country, the IMF board urged the government to continue its prudent fiscal policy, saying economic growth could go up to 5.5 percent in 2007 “but could be significantly higher over the medium term,” if more reforms are made.
This compares to the five percent gross domestic product (GDP) growth forecast by the IMF for this year.
“While stronger fundamentals have made the Philippines more resilient ... important vulnerabilities remain,” the IMF said, noting that public debt and external commercial borrowing requirements are still very large.
“Authorities should sustain fiscal consolidation and other reform efforts to ensure debt sustainability, maintain the confidence of markets, spur investment and the rate of economic growth,” the report said.
“The main downside risks to (forecast economic growth) are a renewed surge in oil prices and a slowdown in the global economy,” the IMF warned.
The IMF credited the government for its controls on spending, saying that this would allow the budget deficit for this year to fall below the government target of P125 billion or 2.1 percent of GDP.
But it also cited the need for improved tax administration and additional tax measures to raise government revenues.
The Bangko Sentral ng Pilipinas (BSP) should also be on the lookout for renewed inflation, the IMF said.
“Inflation remains above (BSP’s) inflation target of four to five percent for 2006, but this is due largely to base effects from oil shocks,” the imposition of an expanded value-added tax (VAT) and the VAT rate hike implemented earlier this year, the IMF added.
It forecast that inflation is expected to return to target levels of four to five percent in 2007. (AFP)
