In 2014, economic growth slowed as itbegan to adjust to unsustainable economic imbalances. RealGDP growth softened to 7 percent in the first 9 months, from12.8 percent in the previous year. Despite strong miningproduction growth of 26 percent, the growth of thenon-mining sector of the economy dropped to 2 percent in thethird quarter from 17.4 percent a year ago. Investmentsharply fell amidst declining FDI and weakening businessprospects. Consumption remains relatively strong but is alsogradually softening. The growth effect from stimulusmeasures of the last year is also wearing off in 2014 aslarge liquidity support from the central bank cannot besustained in the wake of high inflation and externalvulnerabilities. The current account deficit is narrowingsignificantly to around 11 percent of GDP from almost 30percent in the previous three years, due to importcontraction over 16 percent and stronger copper exports.However, a significant external financing gap continuesamidst declining foreign investment, reducing internalreserves to less than three monthsimport cover. Inflationremains in double digits after a strong credit boom in 2014and continuous currency depreciation. Economic growth islikely to continue to soften in 2015 as the economy remainsunder pressure from the external imbalance and highinflation. To help achieve the goal of the newSolutions-oriented Government to overcome economicchallenges and build a sound economic management system, thefollowing policy actions are recommended to be considered inthe economic policy framework: (1) Consolidate theoff-budget spending made through the DBM into the budget;(2) prepare a credible and realistic fiscal consolidationplan to reduce the deficit; (3) monetary policy should betightened; (4) further quasi-fiscal activities need to beavoided; and (5) the exchange rate should be left flexible.
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