The Philippines’ economic growth is likely to reach 5.8 percent this year from last year’s 5.5 percent, and could expand even more if public debt is reined in and investor confidence and investment boosted through additional reforms, the International Monetary Fund said yesterday. .

In its annual health check on the Philippine economy, the IMF said the economy had become more resilient to shocks but vulnerabilities remained.

"Public debt remains sensitive to rollover and exchange-rate risks and external commercial borrowing requirements, while declining, are still significant," the IMF said.

Reza Baqir, resident representative of the IMF in the Philippines , said growth could accelerate further if new tax measures are implemented.

"The economy may grow by 7 percent over the medium term if the reforms are sustained," Baqir said in a briefing yesterday.

The IMF is recommending additional tax measures, on of top the VAT reform, like rationalizing fiscal incentives which would help lower public debt and boost investors’ confidence.

Baqir said that after the elections, the government must "lay the groundwork" for the new tax measures, as well as "efforts to increase revenues to balance the budget."

The 5.8-percent growth forecast is an offshoot of the continuation of the reform momentum, the IMF said.

The government is looking at a higher target of 6.1-6.7 percent for the year.

"Moving forward, people will be looking at the investment to GDP ratio on the back of the reforms. That will begin to pick up," he added.

Meanwhile, the Washington-based lender sees inflation this year at 4 percent, at the low end of the government’s 4-5 percent target.

Besides the public debt, the IMF said a renewed surge in oil prices, slowdown in global economy and sudden reversal in global risk appetite also pose a risk to the economy.

Baqir said "expenditure compression" such as seen last year is "not desirable" and that the government, while balancing the budget, must also increase funding for priority sectors such as infrastructure and social services.

Baqir said the government’s current policy mix with the exchange rate is "broadly appropriate," with concrete efforts undertaken such as the shift to domestic borrowing and prepayment of external debts.

The fund called for further steps to strengthen the Philippine banking sector, noting that the stock of repossessed real estate assets was large.

Resolving this, it added, would help improve the country’s investment rates. Moody’s Investors Service said this week investment as a share of gross domestic product was falling, projected at 14 percent this year, down from 15 percent two years ago,

The IMF urged the Philippine government to tighten regulatory requirements on nonperforming assets if disposals do not accelerate.