MANILA -- The International Monetary Fund (IMF) remains positive about the sustainability of the Philippine economy's growth amid risks such as rising inflation after noting the monetary and fiscal measures put in place by authorities.
In a briefing Wednesday, Luis E. Breuer, Mission head of the IMF team that visited the country from July 11-25, 2018 for the Article IV Consultation, said they forecast the rate of price increases at 4.8 percent by the end of 2018 and at 3.5 percent next year.
Inflation is seen to average at 4.7 percent this year, higher than the government’s two to four percent target, but go down to 3.8 percent next year.
On the first half this year, inflation averaged at 4.3 percent. Last June alone, rate of price increases rose to multiyear high of 5.2 percent from month-ago’s 4.6 percent on account of faster price increases of the food and non-alcoholic beverages index and the alcoholic beverages and tobacco index, among others.
Breuer said they project the deceleration of inflation rate “in the next few months” even as risks to inflation has increased.
“The main message is that we expect inflation to come down in part because you have a number of supply shocks that increased the cost of production that are expected to wean or to become weaker as time goes by,” he said.
In a statement, the IMF traced the uptick in inflation rates to hikes of oil prices in the international market, the external pressures on the peso, one-off effects of higher excise taxes as a result of the Tax Reform for Acceleration and Inclusion (TRAIN), and of domestic demand pressures.
The IMF official said the multilateral agency supports the proposed rice tariffication since this is expected to lead to lower rice prices and eventual deceleration of inflation rate.
“But in addition to that we believe that other policies need to support this strategy to keep inflation contained and lower in the coming months,” he said citing the importance of both the monetary and fiscal measures.
Even with the increase of risks to domestic expansion the IMF projects growth, as measured by gross domestic product (GDP), to remain strong at 6.7 percent this 2018 and in 2019, with the flat growth projection for next year reflecting “what’s happening outside the Philippines.”
These external developments include tighter financial conditions, increase in US interest rates, and the uncertainty associated with trade tensions.
In terms of monetary policy, the IMF official said they support the Bangko Sentral ng Pilipinas’ (BSP) position of “taking the inflation challenge very seriously” to help bring down inflation to within-target levels next year.
“We think that is the appropriate thing to do,” he said.
On federalism, the IMF official said they will respect decisions of Philippines’ lawmakers on this issue.
“From an economic point of view, from what we have seen in terms of decentralization, fiscal federalism in other countries, this can be a good opportunity but also has risks,” he said.
He said the move may positively impact on public services “because local government officials are likely to understand better the needs of the local population and to adopt public services to those needs.”
Risks, however, include the transfer of responsibilities such as management of schools, hospitals and other infrastructure to local governments as well as strengthening the capacity of local governments to spend well.
“It would not be a new process but it is something that needs to be considered when the decision is made,” he added. (PNA)
