IMF hails Phl reforms that mostly began under Arroyo

By Luis Leoncio 

As the Aquino administration draws to a close, more details are being revealed about the supposed reforms initiated under his term, with the International Monetary Fund (IMF) attributing the improvement in fiscal management to measures undertaken during the term of former President Gloria Macapagal-Arroyo. 

In its “Regional Economic Outlook for Southeast Asia,” the IMF cited the Philippines, Malaysia and Thailand as having narrowed the level of inequality in their population over the past two decades.

“Only Thailand seems to have achieved a clear downward trend throughout most of the period, while the Philippines and Malaysia first recorded an uptick in inequality, followed more recently by declines,” it said.

It also said that, in the Philippines, a range of measures started in the 2000s to alleviate poverty and inequality. President Aquino came to power in 2010.

The IMF said that, in 2002, the Comprehensive and Integrated Delivery of Social Services Program provided resources to poor rural municipalities to invest in public goods.

It also mentioned a package of pro-poor spending programs launched in mid-2008 to mitigate the effects of the international food and fuel crises.

“In addition, conditional-cash transfers, also introduced in 2008, set health and education goals for participants that aim to alleviate persistent inequality in access to education,” it said.

“With a limited budgetary footprint at 0.4 percent of gross domestic product [GDP], the program had covered 75 percent of all households identified as poor by the national targeting scheme by 2013,” the IMF said.

Moody’s Investors Service (Moody’s) also made a similar assessment last October, saying that sound fiscal reforms started under Arroyo, who has been detained by the Aquino administration for various allegations, including poll cheating.

The Moody’s report acknowledged the Arroyo administration for having instituted reforms.

“Many of these changes resulted from a public financial-management reform drive that was first mooted during the administration of President Gloria Macapagal-Arroyo in the mid-2000s,” Moody’s said.

Among the reforms that Moody’s cited as having been initiated during the term of Mrs. Arroyo were “institutional improvements,” including “performance-informed” budgeting that has improved expenditure oversight, various tax-administration measures that have boosted compliance, and enhanced procurement processes that have led to cost savings.

IMF’s report, nonetheless, said that, due to the institutional strengths in the country, growth is projected to increase to 6 percent this year and to 6.2 percent in 2017.

“The modest uptick in growth is expected to be driven by the continued strength of domestic demand, which will more than offset the drag from net exports,” it said.

Exports will remain subdued, but spillovers from China are and will continue to be smaller than in other parts of the region, it said.

The report added that domestic demand will benefit from higher public consumption and investment growth, but private demand is also expected to remain buoyant, helped by low unemployment, low oil prices, and higher workers’ remittances.

“Private investment growth is expected to remain robust owing to improvements in public infrastructure and implementation of public-private partnership projects,” it said.

The IMF also cited a law that mandated, from 2008 to 2018, that at least 8 percent of banks’ loan portfolios be allocated to micro and small enterprises.

“Microinsurance has also been picking up in recent years, making the Philippines one of the top microinsurance markets in Asia,” it said.

The IMF said it remains confident on the strength of the economy this year and the next, to be buoyed by strong domestic demand.

It expects the economy to grow from 5.8 percent in 2015 to 6 percent this year and 6.2 percent in 2017.

The domestic economy posted a lower-than-programmed growth in 2015 after a slowdown of growth in the first quarter of 2015 to 5 percent from quarter-ago’s 6.6 percent, due to a drop in net exports and lower government spending.

It recovered in the succeeding quarters, due to higher government spending and the contribution of the services sector.

The IMF report said, “Domestic demand will benefit from higher public consumption and investment growth.

“Of course, Asia is impacted by the still weak global recovery, and by the ongoing and necessary rebalancing in China,” said Changyong Rhee, director of the Asia and Pacific Department at the IMF. “But domestic demand has remained remarkably resilient throughout most of the region, supported by rising real incomes, especially in commodity importers, and supportive macroeconomic policies in many countries.”

“Economies in the region are set to perform well. India has benefited from lower oil prices and remains the fastest-growing large economy in the world, with GDP expected to increase by 7.5 percent this year and next. In Southeast Asia, Vietnam is leading the fast-growing economies in the region, helped by rapidly growing exports of electronics and garment manufactures. For the Philippines and Malaysia, growth is expected to remain robust, underpinned by resilient domestic demand,” he added.

The IMF, however, said the region faces a number of external challenges, including slow growth in advanced economies, a broad slowdown across emerging markets, weak global trade, persistently low commodity prices, and increasingly volatile global financial markets.

These risks compound domestic vulnerabilities, such as high debt incurred in recent years. In the short term, China’s transition to a new growth model will disrupt its regional partners, especially those heavily exposed to the region’s biggest economy.

IMF said geopolitical tensions and domestic policy uncertainty add risks of potential trade disruptions or lower domestic demand.