In its latest World Economic Outlook, the IMF projected the Philippines’ gross domestic product will expand by 5 percent this year, a tad slower than the 5.1 percent growth in 2005 but higher than the fund’s September forecast of a 4.8 percent increase.

The IMF forecast the country’s GDP rising 5.6 percent in 2007.

The fund said that "growth in the Philippines is being supported by surging remittance inflows."

The several million Filipinos working overseas last year sent home a record-high .7 billion in remittances, up 25 percent on year and constituting around 11 percent of 2005 GDP.

The central bank expects overseas workers to remit a total .8 billion this year. In the first two months of 2006, remittances totaled .8 billion, up from .6 billion in the year-earlier period.

The IMF said that, like with other Southeast Asian countries, policy priorities for the Philippines include reducing public debt and containing inflation amid rising energy prices.

The fund has lowered its average inflation forecast this year for the Philippines to 7.4 percent from the 7.5 percent it projected in September. Inflation averaged 7.6 percent last year, lower than the IMF’s 8.2 percent forecast.

For 2007, inflation in the Philippines is expected to dramatically slow to an average 4.7 percent, the fund said.

The IMF said that the favorable fiscal outlook provides the opportunity for countries with high debt like the Philippines "to take steps to put their public finances on a sustainable medium-term footing."

Since last year, the Philippines has been implementing tax reform and other measures to boost revenue and narrow a yawning budget deficit. The government expects to cap the budget deficit this year at P125 billion, compared with 2005’s deficit of P146.5 billion. The government hopes to balance the budget as early as 2008.

The government’s actions have already pushed Standard & Poor’s Ratings Services and Fitch Ratings to change their outlooks for the Philippines to stable from negative. Moody’s Investor Service has said it will wait to see if the government can deliver on its promise to raise P75 billion in additional taxes from revisions to the value-added tax.

An upgrade in the Philippines’ sovereign rating would significantly cut the cost of debt service for one of Asia’s most prolific borrowers. (Dow Jones)