Article

Sustaining Reforms and Improving Investment Climate are Crucial for Philippines

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 2006
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The Philippines’ GDP grew by 5.0 percent in 2005, boosted by buoyant services, such as business process outsourcing, telecom-munications, and tourism. Despite higher oil prices and intense regional competition, the balance of payments remained strong. But, largely because of the oil price increases, average inflation for the year was significantly above the central bank’s target range of 5–6 percent.

Since taking office in mid-2004, the administration has raised tariffs on power generation to cut the power company’s losses and fully implemented the value-added tax reform. Political turbulence in mid-2005 disrupted economic reforms, but the authorities kept fiscal consolidation on track, and uncertainties receded. Fiscal performance in 2005 was better than targeted, and the national government deficit was substantially lower than in 2004, with equal contributions from buoyant revenues and expenditure underruns.

Philippines
2002200320042005Proj.

2006
(percent change)
Real GDP4.44.96.25.05.0
Consumer prices (average)3.03.56.07.77.4
(percent of GDP)
National government balance1-5.6-4.9-4.2-3.0-2.5
Nonfinancial public sector balance2-5.7-5.6-5.0-2.2-2.3
Current account balance-0.50.41.92.42.1

IMF definition. Excludes privatization receipts of the national government and includes operations of the Central Bank-Board of Liquidators.

Includes the national government, Central Bank-Board of Liquidators; 14 monitored government-owned enterprises; social security institutions; and local governments. Data: Philippine authorities and IMF staff estimates and projections.

Data: Philippine authorities and IMF staff estimates and projections.

IMF definition. Excludes privatization receipts of the national government and includes operations of the Central Bank-Board of Liquidators.

Includes the national government, Central Bank-Board of Liquidators; 14 monitored government-owned enterprises; social security institutions; and local governments. Data: Philippine authorities and IMF staff estimates and projections.

Data: Philippine authorities and IMF staff estimates and projections.

Export growth, weighed down by anemic electronics growth, was 3¾ percent in 2005, and oil-related imports were offset by higher remittances. Equity inflows were sizable, and foreign reserves (adjusted for pledged assets) reached $18.0 billion at end-2005. If economic reforms were to stall, investment would probably remain subdued and keep GDP growth below 5 percent in 2006. Heavy reliance on external commercial borrowing also puts the Philippines at risk, a point underscored by the recent turbulence in emerging markets.

The IMF Executive Board commended the authorities for regaining the reform momentum but emphasized the importance of further enhancing the investment climate to set the stage for higher economic growth and substantial poverty reduction. The Directors expressed concern about weaker export performance and stressed that a stable macroeconomic environment, increased infrastructure investment, a stronger financial system, and improved governance would be key to increasing the rate of investment and enhancing competitiveness.

For more information, please refer to IMF Public Information Notices Nos. 06/19 (Swaziland) and 06/25 (Philippines) on the IMF’s website (www.imf.org).

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