BY JIMMY CALAPATI

THE International Monetary Fund yesterday said the effects of the global economic slowdown will be felt most by Filipinos next year as the Philippines suffers a slowdown in growth.

"On the back of recent markdowns in advanced countries’ growth, the IMF expects growth in the Philippines to slow from an expected 4.4 percent this year to 3.5 percent in 2009," an IMF Mission that arrived in the country Nov. 5 said yesterday.

"These are uncertain times. Projections may change again next month," Il Houng Lee, the chief of the IMF Mission, said.

The 3.5 percent growth forecast is lower than the 3.8 percent rate that IMF projected only last month.

The IMF also said that the government will incur a bigger budget deficit next year due to increased spending in order to pump-prime the economy.

Because of the expected higher deficit, the IMF Mission reiterated the need for legislative and administrative actions to raise the tax effort.

Lee said the IMF expects the deficit to be 1.7 percent of gross domestic product next year, or roughly P140 billion, much higher than the government’s latest projection of P102 billion.

"We expect the deficit to be .9 percent of GDP this year or P70 billion. If deficit for next year would be very large, this would have an impact on other macro fundamentals. We feel (1.7 percent of GDP) is the appropriate number," Lee said.

IMF said revenue collections have performed weakly through the year and need to be carefully monitored in the period ahead.

"On the expenditure side, higher current spending will likely be offset by lower capital expenditure, reflecting weak absorptive capacity," he said.

IMF said that for 2009, the key challenge for fiscal policy is how to balance the need to cushion the impact of the global slowdown against the benefits of maintaining fiscal discipline.

Lee said a measured expansion of the deficit would help soften the reduction in growth while containing any adverse market reaction.

Reforming excise taxes on tobacco and alcohol products and rationalization of fiscal incentives, as well as accelerating the implementation of the tax administration reform program, would provide more resources, the IMF said.

The team said reforms in the fiscal and banking sectors, as well as the buildup of reserves in good times, have lessened the economy’s vulnerability.

IMF stressed, nonetheless, that the economy is not immune to the turmoil and that it is important to undertake preemptive measures.

On Wednesday, the government adjusted growth targets for this year and the next after an assessment by the Cabinet-level Development Budget Coordination Committee (DBCC) of the possible effects of adverse global developments on the domestic economy.

The DBCC changed this year’s target GDP growth to 4.1 and 4.8 percent, from the 5.5 to 6.4 percent submitted to Congress in August.

The DBCC revised the GDP growth for next year to 3.7 and 4.7 percent, from the previous 6.1 to 7.1 percent range.

With the change in the growth target, the government also revised the 2009 programmed budget deficit to P102 billion from P75 billion.