By Cai U. Ordinario, October 19, 2023; Business Mirror
The Philippines will have to wait for 2025 before it can post growth of above 6 percent, according to the International Monetary Fund (IMF).
Based on the Regional Economic Outlook (REO) of the Asia and the Pacific region report released on Wednesday, IMF said the country is expected to post growth of 6.1 percent in 2025.
The World Economic Outlook (WEO) growth outlook for 2023 and 2024 were unchanged at 5.3 percent and 5.9 percent, respectively. These were already adjusted from the April 2023 WEO.
“This year’s growth is a bit weaker for many factors including, you know, kind of initially underspending in the government of course, the impact of monetary tightening and the weaker external global environment which is very similar to many Asean countries. For next year we are expecting a pickup because you know, service exports are doing quite well,” IMF Asia Pacific Department Division Chief of regional Studies Shanaka Peiris said.
“So (the) current macroeconomic policy in the Philippines has been one hallmark of the good economic performance. Then also you know, the opening up the economy to foreign investment has been an important aspect,” he also.
However, Peiris said inflation is expected to remain a concern in the Philippines. He reiterated the IMF views that the government’s inflation target will not be met until the first quarter of next year.
“We didn’t think it would come to within target this year, and there’s an upside risk. So what we said is keep the course on monetary policy tightening and you know, you should bring inflation down. But if upside risks materialize, you may need to raise interest rates more. I think that’s where the central bank is at the moment,” Peiris said.
Among the emerging market and developing economies in the region, the Philippines will be the fifth fastest growing economy in 2025.
Based on the IMF’s estimates, Vietnam will be the fastest growing at 6.9 percent followed by Bangladesh at 6.6 percent; Cambodia, 6.4 percent; India, 6.3 percent; and the Philippines at 6.1 percent.
However, IMF Asia and the Pacific Director Krishna Srinivasan said in a briefing that inflation will remain a concern for Asia and the Pacific region. But inflation is expected to slow, even with the threat of higher oil prices.
Given this, Srinivasan said central banks across the region should stay the course and maintain their tight monetary policy stance to bring down inflation.
“With still accommodative financial conditions in Asia’s emerging markets and the upside risks mentioned above, there is no urgent need to ease monetary policy,” Srinivasan said in a briefing.
Earlier, BSP Governor Eli M. Remolona Jr. said he is not ruling out a 25-basis-point (bps) rate hike in November given the latest data, including the 6.1-percent headline inflation rate recorded in September 2023. This, despite the warning of the National Economic and Development Authority (Neda) on the ill effects of further monetary tightening on the economy.
Inflation reached the high end of the BSP’s month-ahead inflation forecast due to more expensive rice prices which increased 17.9 percent, the highest in 14 years.
Socioeconomic Planning Secretary Arsenio M. Balisacan said he is not in favor of further rate hikes, saying inflation is being caused by supply side issues that jack up commodity prices. Such a situation, he said, does not call for monetary policy tightening.
Raising interest rates would also not lead to a competitive peso, he added. Balisacan said a weak peso is what the country needs to grow faster since this will allow exporters and local producers to earn more as well as increase the purchasing power of dollar earners and their families in the Philippines.
Balisacan explained that it is a misnomer that a weak peso translates to a weak economy. On the contrary, it allows sectors such as Business Process Outsourcing (BPO) and Overseas Filipino Workers (OFWs) to have greater purchasing power.
This increase in income is good for consumption-driven economies like the Philippines. Conventionally, the bulk or 70 percent of the economy is driven by consumption and 10 percent of this is accounted for by the consumption from overseas Filipino workers’ remittances.