MANILA, NOVEMBER 15, 2008 (STAR) (STAR) By Des Ferriols Updated - The Philippines' economic growth would be slightly slower than expected in 2009, according to the International Monetary Fund (IMF).

The IMF though warned that the Philippine government should not risk incurring a large deficit that could make the problem worse.

The IMF wrapped up its annual macroeconomic review this week and concluded that the buildup of buffers in times of plenty has lessened the Philippines' vulnerability to the global crisis.

Even as the country is in a good position to weather the crisis, the IMF however warned preemptive measures are needed to cope with the full brunt of economic slowdown.

IMF mission chief Il Houng Lee said the Fund retained its 2008 growth forecast of 4.4 percent but next year's outlook has been downscaled slightly from 3.8 percent to 3.5 percent.

Lee said the growth projection for 2009 is based on the assumption that the Arroyo administration would be undertaking a fiscal stimulus program to dampen the impact of the global slowdown on domestic economic activities.

"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," Lee pointed out.

Malacaņang projected that its budget deficit could go up to as high as P75 billion this year and even higher in 2009, to the tune of about P100 billion.

According to Lee, the IMF's own calculations indicated that the Philippine government could incur a deficit of as much as 1.7 percent of gross domestic product, equivalent to about P140 billion to P150 billion, without triggering the negative effects of an overly large deficit.

While it would be necessary for the government to undertake a stimulus program, Lee explained it could backfire if the fiscal deficit goes over 1.7 percent of GDP because it would trigger a rise in interest rates and make borrowing more expensive.

According to Lee, the IMF expected the country's tax effort to remain broadly unchanged at 14 percent of GDP because windfall revenues from high oil prices were offset by changes to the income tax law and weaknesses in the revenues from the value-added tax.

Lee said the IMF was concerned that domestic taxes have performed weakly through the year.

Chief News Editor: Sol Jose Vanzi

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