Press Release: IMF Mission Statement at the Conclusion of the 2006 Article IV Consultation and Post-Program Monitoring Discussions with the Philippines
November 17, 2006Press Release No. 06/254
The following statement was issued today in Manila by an International Monetary Fund (IMF) staff mission:
"An IMF mission visited Manila during November 6-17, 2006 to hold Article IV and post program monitoring discussions with the authorities. The findings will be relayed to the IMF's Executive Board in early 2007 but a preliminary assessment is as follows:
"Impressive fiscal reforms in an environment of sustained growth and declining inflation have strengthened market confidence in the Philippines. The mission welcomes the authorities' commitment to sustain the reform momentum in the period ahead, while using part of the increased revenues from the Value Added Tax (VAT) reform to finance priority spending.
"The growth outlook has become more favorable. The economy is expected to expand by 5.5 percent this year, higher than 5.0 percent previously projected, and by a further 5.8 percent in 2007. Exports are growing faster than expected and the outlook for investment has improved. Raising growth further over the medium term is key to substantially raising living standards and decisively reducing poverty.
"The national government deficit looks set to considerably undershoot the authorities' target of P125 billion in 2006. Looking ahead, balancing the budget while increasing priority spending will require further revenue effort. Accelerating the implementation of tax administration reforms is therefore crucial. New tax measures, such as a rationalization of tax incentives, will likely also be needed. At the same time, careful monitoring of other parts of the public sector, such as the government-owned and controlled corporations (GOCCs), will be necessary to support the fiscal consolidation effort.
"Inflation continues to moderate due to base effects coming off, a stronger peso, and lower fuel prices. The mission estimates underlying inflation to be running at 3-4 percent. Upside risks to the inflation outlook stem from possible further volatility in international financial markets and renewed rises in international oil prices. On the other hand, inflation could be lower than forecast if the peso continues to strengthen or oil prices sustain their decline.
"The mission welcomes positive developments in the financial sector including sales of non-performing assets, bank consolidation, and the introduction of new international financial reporting standards. The implementation of Basel II next July should lead to further progress. Passage of legislative initiatives to further develop the financial sector, such as the Credit Information Systems Act and the Corporate Recovery Act, would also be welcome.
"In the power sector, the financial performance of the National Power Corporation continues to be much improved. However, progress on privatization will need to be quickened and the mission hopes that the upcoming Transco rebidding will be successful. The conclusion of a large power deal could play an important role in catalyzing other private investment."