(Eagle News) — The International Monetary Fund’s outlook for the Philippine economy remains “favorable despite external headwinds.”
In a statement, the IMF predicted the country’s Gross Domestic Product growth at 6.6 percent for 2017 and 6.7 percent for 2018.
It said this was “owing to continued robust domestic demand.”
“Inflation is expected to stay near the center of the (Bangko Sentral ng Pilpinas’) target band due to stable commodity prices and well-anchored inflation expectations. The current account balance is projected to record a small deficit in 2017, because of strong infrastructure-related import growth,” the IMF said.
According to the IMF, credit growth has also “accelerated.”
“..Although most indicators find no evidence of credit booms so far, some indicators suggest that credit gaps could approach early warning levels in 2017 to 2018,” it said.
Public debt is also “expected to fall further as percent of GDP.”
While the “risks to the outlook are tilted to the downside,” the IMF said the Philippines “is well equipped to respond should risks materialize given its strong fundamentals and available policy space.”
The risks “stem mainly from external sources.”
“The combination of high credit growth, buoyant private investment, and fiscal expansion without tax reform could lead to overheating of the economy… The main systemic risks to financial stability are high credit growth and concentration. High credit growth, especially to the real estate and household sectors, merit continued monitoring,” it said.
According to the IMF, some conglomerates and real estate developers have also “leveraged significantly, while shadow-banking activities have expanded.”
“The conglomerate structure and data gaps generate challenges to measure concentration but capital market development could help reduce bank loan concentration by diversifying the sources of funding for large conglomerates,” it said.
To address the “systemic risks to financial stability,” the IMF said “macroprudential policies” should be implemented.
It added authorities should also “have legal access to information on conglomerates’ finances.”
“In case of a broad-based credit boom, the (BSP) should raise capital requirements, supported by monetary policy tightening if accompanied by overheating. Targeted macroprudential policies should be used if sectoral credit growth is excessive,” it said.
The IMF added the BSP “should be ready to tighten if there are signs of overheating,” even as the “stance of monetary policy remains appropriate.”
“The authorities’ intention to unwind the high banks’ reserve requirements over time would reduce macrofinancial risks. However, this reform should be carefully calibrated and timed, and should aim to keep domestic liquidity broadly unchanged,” the IMF added.