Statement at the Conclusion of an IMF Staff Visit to the Philippines

Press Release No. 11/288
July 20, 2011

Mr. Vivek Arora, International Monetary Fund (IMF) mission chief for the Philippines, issued the following statement in Manila today at the conclusion of a staff visit:

“The recovery phase has been managed well with a gradual withdrawal of policy stimulus and the initiation of reforms to address long-standing constraints to growth. As a result, the near-term outlook for the Philippines is favorable, characterized by moderating but still rapid growth. Inflation is expected to remain within the target range this year and next, and the balance of payments to stay in surplus. The fragile global economic environment remains a key risk to the outlook. In addition, strong capital inflows need to be carefully managed in order to avoid macroeconomic and asset price volatility.

“GDP growth appears to have eased in the first half of 2011, owing to lower export growth that partly reflected supply disruptions from the Japan earthquake and to a temporary dip in public expenditure as the government puts in place important reforms to enhance expenditure quality. Consistent with the global outlook, the staff expects economic activity to pick up again in the second half of the year and growth to average 5 percent in both 2011 and 2012.

“The Bangko Sentral ng Pilipinas (BSP) has appropriately started to normalize monetary policy in anticipation of inflation pressures from strong demand and high fuel prices. With abundant liquidity and the strong recovery, it may be necessary to continue normalizing the policy stance. If a tail risk were to materialize, such as a global shock, there is scope to adjust the pace and timing of policy normalization.

“The government’s steadfast moves to achieve fiscal consolidation are very appropriate in light of the maturing recovery and the need to create space for priority spending. The authorities’ emphasis on reorienting spending toward social and capital expenditure will help to strengthen the basis for rapid and inclusive growth going forward. An increase in the tax effort will be needed to achieve these goals. A comprehensive revenue mobilization strategy would include the important reforms that are underway to strengthen tax compliance and administration, as well as measures to reform excises, rationalize fiscal incentives, and address VAT exemptions.

“The financial sector has remained resilient, owing in large part to the strengthening of the supervisory and regulatory framework in recent years. Nonperforming loan ratios are relatively low and capital adequacy high. Concentration risk and interest rate risk should continue to be carefully monitored.”



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