The International Monetary Fund (IMF) has lowered its 2009 growth projections for the Philippine economy and remittances from overseas Filipino workers.

In its latest World Economic Outlook (WEO), the IMF has revised its gross domestic product (GDP) growth to zero after its 2.25 percent forecast made only in February. It cited the declining trade and slower consumer spending.

“The revision [in the Philippines’ growth outlook] reflected the prospect of a significant contraction in exports and imports and a weakened outlook for remittances, which we now anticipate to decline by 7.5 percent in 2009,” IMF resident representative Botman told reporters in a press conference late Wednesday.

Botman said the Philippines' trade performance will be dragged by slowing world trade. IMF projected global trade to decline by 1.25 perccecnt in 2009--the first decline since the Second World War and by far the deepest global recession since the Great Depression.

Philippine exports data showed it has been declining at double-digit pace for 5 consecutive months.

The international lender said the risks to the outlook for the region remained “tilted squarely to the downside,” adding that the key concern was a deeper and longer recession in advanced economies outside Asia.

Botman said the Philippines will post a modest but delayed recovery in 2010.

Remittances, too

The IMF is also expecting remittances to the Philippines to decline by 7.1 percent. Previously, it echoed the Philippine government's projections that last year's $16.4 billion will be maintained this year.

Remittances have previously been resilient despite previous crisis at home and, in 1997/98, in Asia. It allowed the Philippine economy to continue posting healthy growth levels since it fueled consumer consumption.

Botman said it expects consumption to grow slower by 2.7 percent as remittances decline.

Nonetheless, Botman said the increased government spending is likely to pick up the slack in remittances.

“The recent announcement to increase the deficit target to close to 3 percent of GDP is appropriate and provides an upside risk to our growth projections while not affecting investor confidence,” Botman said.

Debts

What concerns the IMF about the Philippines is its high level of debt that could be made worse by higher deficit spending and higher borrowing.

“Given the still-high level of public debt, there should be a measured fiscal stimulus to avoid compromising fiscal sustainability and policy credibility,” the IMF said in the report.

“To provide more scope for fiscal easing and outlays on well-targeted pro-poor cash transfers, [IMF] directors suggested raising the tax collection effort, broadening the tax base, and rationalizing tax incentives,” it added.

The government announced Wednesday that it is likely to borrow more overseas as first quarter budget deficit swelled to P120 billion, already nearing the entire year's official deficit target of P199.2 billion.