The International Monetary Fund (IMF) recently increased the Philippines' gross domestic product (GDP) growth projection from 6.6 percent to 6.7 percent in 2015 due to higher public spending, lower commodity prices, strong export growth and strong private construction activity.
The IMF advised the Philippine government to increase investment and spending over the medium term, particularly on infrastructure and human capital. While the IMF lauded the central bank's (Bangko Sentral ng Pilipinas) preemptive policies that led to better liquidity and credit growth and reduction in financial stability risks, it urged continued efforts to improve revenue spending, measures to offset policy changes that may erode revenues, and a comprehensive tax reform. The IMF added that these initiatives are critical to meet the country's large spending needs.
Meanwhile, headline inflation is expected to hit the lower end of the central bank's 2 to 4 percent target range due to lower prices of commodities such as food. The country's current account, which measures the net transfer of real resources between the Philippine and international economies, is expected to remain in surplus due to strong revenues from outsourcing in the Philippines, lower oil prices, and strong remittances. The current account reached $12.6 billion in 2014.
However, the IMF cautioned that internal and external risks to growth remain, such as disruptive changes in asset prices due to contradictory monetary policies in developed economies. External demand could also weaken if deflation and lower growth occur in advanced and emerging markets.