MANILA (Reuters) - The Philippines is likely to sustain economic growth of 6.7 percent this year and in 2019, underpinned by strong consumption and investment, the International Monetary Fund said on Wednesday.
However, it noted that near-term risks from rising inflation and a changing external environment had increased, and has revised its forecast for the country’s current account deficit, which has weighed on the Philippine peso.
“Downside risks stem mainly from rising inflation, continued rapid credit growth, higher U.S. interest rates and U.S. dollar, volatile capital flows and trade tensions,” the IMF said in a statement issued following its regular “Article 4” review of the Philippine economy.
It now expects the current account deficit to rise to 1.5 percent of GDP by end-2018, from a previous forecast of 0.3 percent, mainly due to increased imports of capital goods and raw materials.
The IMF, however, said the deficit is likely to remain manageable as it would be financed largely by foreign direct investment.
The peso has weakened by more than 6 percent against the U.S. dollar since the start of the year, making it one of Asia’s worst-performing currencies.
“To strike the right balance between growth and macroeconomic stability, policies need to be adjusted to reduce inflationary pressures, while structural reforms should continue to support inclusive growth,” it said.
The IMF supports tightening monetary policy further to anchor inflation expectations. It also endorsed keeping the fiscal deficit in 2018 and 2019 broadly unchanged at around 2.4 percent of GDP to support efforts to contain inflationary pressures.
It said maintaining exchange rate flexibility was also needed to help the economy adapt to external shocks and called for measures to safeguard financial stability amid rapid credit growth and rising corporate debt.
Reporting by Neil Jerome Morales and Enrico dela Cruz; Editing by Eric Meijer and Sam Holmes