"(Our GDP) is lower for 2007 because oil prices remain high," IMF Mission Head James Gordon told an IMF Post Program Monitoring press briefing yesterday. "Besides the risks of high oil prices, the investments are also very weak."

The IMF mission concluded their two-week biannual PPM review yesterday and while their report said that the economy has so far performed well in the first half of the year, GDP growth will only be sustained once "private investment starts to pick up."

"A rising growth trajectory is needed to substantially raise the living standards and decisively reduce poverty," said Gordon.

In the meantime, IMF Representative to Manila Reza Baqir is optimistic about Philippine growth prospects for this year and in the next. "The economic team has successfully managed to turn the ship around and are now doing better than before." He said this would continue as the fiscal sides improve.

"Overall hopefully, it would generate investments and fuel growth. We are projecting growth in investments as well," said Baqir.

The IMF believes the new value added tax law will provide enough resources to "reduce the deficit and increase spending for infrastructure projects."

With the new tax laws and improvements in tax administration, Baqir said the outlook for economic growth would get better.

Last year GDP growth was 5.1 percent – this is below target of 5.3 percent, down from six percent in 2004. According to the IMF, weak exports and a decline in investment served as a "drag on activities."

In the meantime private consumption has been supported by strong inflows from remittances and so far, the markets have "shrugged off the effects of high petroleum prices."

The multilateral agency said a risk to the near-term outlook for the Philippine economy is that political events including a possible constitutional change will "serve to sideline economic reforms."