MANILA, June 23, 2005
 (STAR) MF still bullish on RP growth By Des Ferriols - Despite the impact of surging oil prices on economic activity, the International Monetary Fund (IMF) said the country’s gross domestic product was expected to grow by 4.75 percent this year.

The IMF said the economy would be boosted mainly by remittances from overseas Filipino workers, renewed vigor in the tourism industry and the growth in business process outsourcing.

This year, the IMF said it believed that the Arroyo administration would also be able to reduce its budget deficit to P150 billion, primarily because of increased tax revenues on tobacco and alcohol as well as the lifting of value-added tax exemptions for oil and petroleum products.

The IMF wrapped up its annual performance review yesterday, meeting with top government officials to assess the progress of the Arroyo administration’s economic reform program.

According to IMF mission head Masahiko Takeda, the IMF was particularly satisfied with the government’s efforts to put the fiscal deficit on a downward path by controlling its spending and tightening its tax administration to raise revenues.

"I’d say we are less worried now about the country’s prospects than we were a year ago," Takeda told reporters.

He said the IMF agreed with government projections indicating that recent revenue measures would allow the fiscal deficit to drop from P186 billion in 2004 to P150 billion this year.

"By 2006, we’re hoping the deficit will be substantially lower," Takeda said. "The deficit path (projected by the government) is consistent with our recommendation to frontload reduction of the fiscal deficit."

The Arroyo administration had projected that the 2006 deficit would fall below the P100-billion mark for the first time since 2000, dropping to P87 billion.

Takeda said these improvements on the economic front bode well for investors who have been looking for substantial improvement.

"Foreign portfolio investment has responded favorably to the better fiscal news while a pivotal ruling by the Supreme Court on foreign ownership of mining projects has improved prospects for foreign direct investments," Takeda said.

However, Takeda said there were still a number or risks in the outlook, including the potential for further increases in oil prices and a softening of foreign demand for Philippine exports as well as the continued potential for adverse developments in international capital markets.

"Moreover, recent events have demonstrated the sensitivity of the economy to political uncertainty," he said.

Looking forward, Takeda said the successful implementation of the fiscal reform agenda would be critical in reducing the country’s economic vulnerabilities.

On the other hand, the IMF said the government would have to accelerate the pace of power sector privatization to restore the financial viability of the sector and facilitate investments needed to ensure adequate power supply.

Earlier in March, the IMF said the country’s gross domestic product exceeded expectations but unemployment remained high despite the 3.6-percent increase in the 2004 employment mostly through the rapid creation of jobs in the services sector.

"Even so, unemployment averaged 11.8 percent in 2004, up from 11.5 percent in 2003," the IMF said.

Gross domestic product refers to the total value of all goods and services produced within a country in a year, minus net income from investments in other countries.

Reported by: Sol Jose Vanzi

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