The Philippines should ease monetary policy and step up efforts to boost tax revenue as a global economic slump threatens to slow growth in the nation to an eight-year low, the International Monetary Fund said.
The US$144 billion economy may expand 3.5% in 2009, slower than an earlier forecast of 3.8% and down from an estimated 4.4% this year, the fund said in a statement in Manila today.
“If the economic slowdown proves protracted and inflation expectations adjust sufficiently downwards, which appears to be a likely scenario, monetary policy could be eased in the period ahead,” the IMF said. There’s also a “need for legislative and administrative action to raise the tax effort.”
The Philippine central bank said today it has “flexibility” in setting interest rates as inflation cools, signaling it may join other nations in cutting borrowing costs after raising them earlier this year. The government may defer a May deadline to balance its budget by 2010 as it increases spending to spur growth, Economic Planning Secretary Ralph Recto said today.
Inflation has eased across Asia as crude oil and commodity prices tumbled amid faltering global demand. The IMF is predicting the first simultaneous recession in the US, Japan and the euro region since World War II as the deepening global financial crisis crimps demand for goods and services.
The average inflation rate in the Philippines will fall to 6% next year from 9.8% in 2008, the IMF said today. Consumer-price gains may slow to less than 10% in January on lower oil and food prices, Recto said.
The government expects its budget deficit to widen to as much as 102 billion pesos (US$2.07 billion), or 1.2% of gross domestic product, in 2009 from an estimated 75 billion pesos this year. The budget deficit may be 0.9% of GDP this year and 1.7% in 2009, the IMF forecasts.
State-owned National Food Authority, which sells subsidised rice, may post a deficit of 1% of GDP in 2008, IMF said.
“For 2009, the key challenge for fiscal policy is to balance the need for cushioning the impact on the real sector against the benefits of maintaining fiscal discipline,” the IMF said. A shortfall of 1.7% “would help to soften the reduction in growth while containing any adverse market reaction.”
The Philippine government, predicting asset sales will cool next year, said today it wants lawmakers to pass new tax measures that may boost state income by 35 billion pesos to help fund public works spending. It wants to cut down on tax breaks and simplify the levy on cigarettes and liquor by tying the rate to inflation, Finance Secretary Gary Teves said in a telephone interview in Manila today.
Bangko Sentral ng Pilipinas kept its key interest rate unchanged at 6% last month, halting three successive increases that began in June. Inflation has eased since reaching a 16-year high in August, slowing to 11.2% in October.