MANILA, Philippines — The International Monetary Fund (IMF) said a cautious approach to policy normalization is warranted given the uneven recovery paths in Asia-Pacific from the pandemic-induced recession.
In a report titled “Navigating Waves of New Variants: Pandemic Resurgence Slows the Recovery,” the IMF said the pandemic has taken a turn for the worse in some parts of the world, prompting the multilateral lender to lower the gross domestic product (GDP) growth projections for Asia to 6.5 percent from the original target of 7.6 percent for this year and to 5.7 percent instead of 5.3 percent for next year.
“A cautious approach to policy normalization is warranted in most Asian emerging market and developing economies, given weakening recovery paths, if external stability and inflation expectations continue to remain well anchored,” the IMF said.
It said the Philippines and other member countries of the ASEAN-5 are still facing severe challenges from a resurgent virus and weakness in contact-intensive sector.
It added the policy mix has remained accommodative in advanced economies in Asia that sustained the pace of asset purchases and in emerging market and developing economies that retained low policy rates.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno has said the central bank would do whatever it takes to help the Philippines fully recover from the pandemic-induced recession.
The BSP has maintained an accommodative policy stance by keeping interest rates at record lows for seven straight rate setting meetings since November last year.
“To me, the harm that tightening monetary policy too soon exceed the harm of moving too late, given that the Philippine economy is at it nascent state of economic recovery,” Diokno earlier said.
“The accommodative financial conditions have allowed the fiscal authorities to maintain unprecedented support to vulnerable households and firms through the first half of 2021,” the IMF said.
It pointed out the pandemic has resulted in unprecedented output losses in Asia and the Pacific region, leading to inevitable scarring in diminished productivity and lost jobs.
“Losses will likely be larger than expected earlier, especially in emerging market and developing economies (excluding China), which have been hit hardest by the new waves of the virus, and in fiscally constrained and tourist-dependent economies, including the Pacific island countries,” it said.
The IMF warned that rising inequalities also tend to increase the risk of social unrest and may harm growth potential further, while the pandemic-induced loss of learning from school closures could have long-lasting effects on future earnings and productivity in Asia.