Philippines maintains sound GDP growth and investment flows

After five straight years of robust macroeconomic expansion, the Philippines ranks as one of the best-performing economies in South-east Asia. With rapidly rising domestic consumption, soaring foreign direct investment (FDI) and a growing services sector, the country is set to record world-leading growth rates in 2017. Although weakening global and regional demand have weighed on exports, and the agriculture sector remains subdued following years of volatile and problematic weather, prudential fiscal management, falling public debt and legal reforms aimed at improving the investment climate have left the country positioned to tap global debt markets and attract new investment.

New Era

International involvement will be critical for the delivery of new infrastructure projects, some of which have stalled of late. Public infrastructure spending is forecast to soar in the coming years, with private sector participation remaining a critical pillar of long-term transport development, presenting considerable opportunities for foreign investors.

Thus, 2017 could mark the start of a new era for the country’s economic development, after former president Benigno Aquino III’s six-year term in office ended last year. Newly elected President Rodrigo Duterte has focused much of his early policy on improving the business climate, reducing poverty, underemployment and unemployment, and implementing major public infrastructure projects in a timely fashion.

Rising Star

The Philippines has been one of Southeast Asia’s rising economic stars in recent years, with annual GDP growth averaging 5.35% between 2005 and 2015. Economic expansion remained in positive territory even during the worst of the global financial crisis, at 4.15% in 2008 and 1.15% in 2009, before rebounding dramatically to 7.63% in 2010. Recent growth has put the country at the forefront of ASEAN and global economic expansion, with GDP growth hitting 6.68% in 2012, 7.06% in 2013, and 6.22% in 2014, according to data from the IMF. In its most recent Article IV consultation for the Philippines, published in September 2016, the IMF reported that the country’s economic growth has remained robust in recent months, recovering from a slowdown in mid-2015 to end that year at 5.9%, and then gaining further momentum throughout 2016. Indeed, the Philippine Statistics Authority (PSA) reports that GDP expanded at a rate of 6.8% in 2016. Growth was driven by expansion of the services sector, particularly in the trade and real estate segments. In the second quarter of 2016 the services sector expanded by 8.4%, compared to 7.8% for 2015, though it did decelerate slightly to finish out the year with 7.4% growth.

At the same time, industry grew by a healthy 7.6% in 2016, up from 6.5% for 2015. Meanwhile, the agriculture sector declined by 1.1% for the year, after contracting by 0.2% in 2015. Although weakening external demand had a mostly negative impact on export growth, the IMF reports that both consumption and investment grew rapidly throughout 2016.

Domestic Consumption

Broken down by sector, services accounted for the largest xportion of GDP in 2015, at 59%, followed by industry with 30.8% and agriculture at 10.3%, according to the World Bank. Domestic consumption has been the economy’s strongest driver of GDP growth, contribution close to 70% of GDP annually, according to the Asian Development Bank (ADB). The country has reported consistent gains in both income and expenditure over the past decade. In the “2015 Philippine Statistical Yearbook”, the PSA reported that average annual family income rose from P206,000 ($4350) in 2009 to P235,000 ($4970) in 2012, an increase of 14%. Annual family expenditure, meanwhile, increased by 9.7% over the period, from P176,000 ($3720) in 2009 to P193,000 ($4080) in 2012. Consumption has been supported by rising employment, steady investment flows from overseas foreign workers, and manageable inflation levels, according to the ADB. Indeed, though increased government expenditure is expected to support further growth in consumption in 2017, private consumption will remain the main growth driver. The population reached an estimated 103m in the second quarter of 2016, and the PSA reports that per capita GDP and per capita GNI rose by 5.2% and 5.1%, respectively, over the same period, up from 4.2% and 3.6% in 2015.

Trade

Rising domestic demand is affecting the trade balance, and in 2015 the Philippines’ current account surplus fell to 2.9% of GDP, despite the fact that weaker global oil prices saw the country’s energy bill drop by 1.3% of GDP over the same period. This is attributable to decelerating remittances, declining exports, and new capital and intermediate goods imports, according to the IMF. The PSA reports that imports rose by 12.2% year-on-year (y-o-y) in August 2016 to $6.93bn. Consumer imports in particular have been expanding rapidly, up 59% y-o-y in August 2016 to hit $1.33bn, compared to the $833.3m recorded in August 2015. Capital goods imports increased by 29.9% to $2.33bn, from $1.77bn in August 2015, with the total trade deficit reaching $2.03bn, nearly double the $1.05bn recorded in August 2015. Exports fell by 4.4% y-o-y to $4.9bn in the same month, down from $5.13bn in August 2015, as a result of sluggish regional and global demand. The country’s traditional export markets, including Japan and the US, have shown a weakened appetite for Philippine exports, prompting the National Economic and Development Authority (NEDA) to advise the country to tap new markets, such as Russia, Kuwait, Mongolia and Malaysia. Pursuing a broader trade strategy enabled export growth to resume in early 2017. The PSA reports that exports were up 22.5% y-o-y in January 2017 at $5.1bn.

Asean Risk

The August 2016 import figures shine the spotlight on downside risks the country faces in light of ASEAN Economic Community integration, which is creating a single market for ASEAN members. Imports from Indonesia rose by 86.6% in August 2016, according to the PSA, while inbound goods from Thailand grew by 28.5%, followed by Japan (24.1%) and South Korea (13.1%). With domestic demand likely to drive imports even higher in 2017, domestic suppliers are facing competition from cheaper ASEAN imports, making further expansion of the country’s industrial and manufacturing sectors increasingly crucial, particularly given falling agricultural employment and output. The country’s trade surplus is forecast to have declined further by the close of 2016 and into 2017 as commodity prices recover and infrastructure-related imports increase, according to the IMF.

Inflation

Although imports have been rising and macroeconomic expansion is still robust, the Philippines has recorded relatively low levels of inflation in recent years. The Philippines’ Development Budget Coordination Committee is an inter-agency economic planning body that, together with the central bank, the Bangko Sentral ng Pilipinas (BSP), sets annual inflation targets defined by the average y-o-y change in the consumer price index. The bank targeted an inflation rate of between 2% and 4% from 2015 to 2018, although the IMF reports that falling global commodities prices kept inflation below this target, at 1.4% in 2015 and 2% in 2016. After hovering around 2% through the first three quarters of 2016, headline inflation jumped from 1.8% in August of that year to 2.3% in September, inching towards the upper limit of the BSP’s 1.6-2.4% tolerance range. Higher headline inflation was driven by rising food and transportation prices. Meanwhile, core inflation rose from 2% to 2.3%, highlighting demand-side price pressures supported by a strong domestic economy. By February 2017 headline and core inflation had edged up further, to 3.3% and 2.7%, respectively, according to data from the PSA.

Monetary Policy

Relatively stable inflation, robust macroeconomic growth and rising consumer demand have driven the BSP to adopt accommodative monetary policies. It has not adjusted its policy stance since September 2014, when it raised interest rates by 25 basis points. Furthermore, in June 2016 the bank deployed an operational adjustment that reduced the overnight lending rate from 6% to 3.5%, while the overnight repurchase rate was cut from 4% to 3% as part of a shift towards an interest rate corridor system. The IMF reports that sizeable remittance and portfolio investment inflows in the wake of the global financial crisis allowed the country to build up significant reserves of cash, leading to a persistent excess of liquidity in the banking system, with market interest rates often below the floor of the BSP’s interest rate corridor. This has driven effective borrowing costs in the country to historic lows, fuelling credit growth which, while not presently a major concern, could pose the risk of both a credit and real estate bubble in the years ahead.

Credit Growth

While the Philippines’ stock of bank credit stood at just 39% in 2015, lower than any other emerging market and reflecting limited household access to formal financing, the past three years have been marked by consistent double-digit credit growth. The IMF reports that bank credit growth soared to 20% in 2014 before moderating to 13.6% in 2015, although it regained momentum in 2016, rising by 17.6% y-o-y in June alone. Credit to the construction and real estate sector rose by more than 20% in the same month.

Rapid increases in corporate leverage led the IMF to warn that the situation warrants close monitoring. Although the BSP told media in September 2016 there was no compelling reason to adjust its policies, Normura Securities forecast the bank would hike interest rates twice in the first half of 2017. The company expected BSP’s excess liquidity absorption would improve during the final months of 2016, prompting the BSP to raise policy rates by a cumulative 50 basis points to help curb the risk of economic overheating under the new administration. However, as of March 2017, the BSP indicated that it had decided against raising policy rates in the near term.

Political Transition

The 2016 political transition has significant ramifications for the country’s economic development. President Duterte assumed office on June 30, 2016, after campaigning on promises to crack down on crime and corruption, raise infrastructure spending, increase FDI inflows, and boost GDP growth to between 7% and 8% annually. Although international media attention has tended to focus more on its anti-crime campaigns, the new government’s 10-point socio-economic agenda, released in June 2016, emphasises higher infrastructure spending, tax reform and competitiveness. The plan offered reassurance to stakeholders that the new administration would not implement abrupt policy changes that could harm the business climate: its first priority is to “continue and maintain current macroeconomic policies, including fiscal, monetary and trade policies”.

Indeed, the country has benefitted from years of stringent fiscal policy, legal and regulatory reforms, and moves to improve transparency, as evidenced by a host of recent upgrades to its sovereign credit rating. However, it has concurrently experienced underinvestment in its infrastructure networks, with just three of more than 50 planned projects under the public-private partnership (PPP) programme having been completed and operational as of August 2016.

Poverty & Inequality

Although poverty rates have declined steadily over the previous decade, poverty and extreme poverty rates remain high, and income inequality has significantly worsened. In 2012, for example, media reported that the collective wealth of the Philippines’ 40-richest families rose by $13bn between 2010 and 2011, equivalent to 76.9% of GDP growth over the same period.

In October 2016 the PSA reported that 21.6% of Filipinos were living below the poverty line, or earning less than P10,969 ($232) per month during 2015. Of these, about 12m are living in extreme poverty, or earning less than P7638 ($160) per month. However, poverty has been declining steadily. In 2006 the incidence of poverty was 28.8%, a figure which had fallen to around a quarter of the population, or 25.2%, by 2012.

Despite the steady improvement at the national level, regional disparities are a challenge. The Autonomous Region in Muslim Mindanao (ARMM) reported a poverty rate of 59% in 2015, with almost one-third of this group, or 30.1%, living in extreme poverty. ARMM has not benefitted from broader national trends, with poverty rates rising from 49.8% in 2006 to 52.9% in 2012, according to PSA data. Meanwhile, the National Capital Region, or Metro Manila, reported the lowest incidence of poverty, at 6.5%. It too has seen poverty levels rise, however, from 4.4% in 2006 to 5.4% in 2009. Metro Manila’s regional poverty threshold is the highest in the country – P12,517 ($264) per month – while Mimaropa, or the Southern Tagalog Islands, had the lowest, at P10,097 ($213) per month.

Labour Market

Higher employment has supported the falling poverty rates. In March 2016 the NEDA reported unemployment had dropped to 5.8% in January, down from 6.3% in 2015 and below the IMF’s forecast of 5.9% for the year, although there was a slight rebound by April to 6.1%. Rates settled at 6% for the first half of 2016 and 5.75% in the second half of the year, and the IMF forecasts unemployment will continue to drop to 5.7% in 2017.

As of the start of 2017, however, the jobless rate was up to 6.6%, and despite the overall improvement to the country’s employment figures, youth unemployment has remained persistently elevated, standing at approximately 13% for 2016. The PSA reports that 23.8% of the young, working-age population, or 4.7m people, are neither in school or employed.

Critically for the labour force, underemployment also remains high, though as of January 2017 it had eased to 16.3%, compared to 19.6% the previous year, Silvestre Bello, the secretary of labour and employment, told local media. The government’s target for 2016 was 17%, equivalent to 7.3m people, mostly from the agriculture and services sectors. Meanwhile, industries such as construction are facing a shortage of electricians, plumbers, house painters and so on, especially with government infrastructure programmes under way. As tertiary enrolment increases, such trades may face additional labour deficits.

In spite of steady progress, the research firm Ibon reported in May 2016 that the country has the worst unemployment rate in the region, while chronic underemployment and stagnant real wage growth are becoming pressing issues for government stakeholders. Indeed, in October 2016 Pulse Asia reported that a survey of 1200 Filipinos had found that salary increases were a pressing concern, with 46% of respondents citing low wages as the most urgent issue the government needs to address, followed by job creation, at 38%. Controlling inflation (37%), fighting corruption (32%) and reducing poverty (32%) rounded out the top-five concerns.

10-Point Solution

The new administration marked its first months in office with a series of policy reforms aimed at addressing poverty and underemployment, many of which are enshrined in its 10-point socio-economic agenda. The plan calls for progressive tax reforms and a more effective tax collection system, which will eliminate taxes for the lowest-earning Filipinos. The World Bank reports that macroeconomic growth is increasingly allowing the domestic market to absorb an expanding labour force, with welfare mechanisms, educational reforms and vocational training options expected to reduce both unemployment and underemployment over the medium term (see analysis).

The government is also planning to roll out an expansive tax reform programme, announced in August 2016. The plans includes reforms that will reduce the corporate tax rate from 30%, the highest in Southeast Asia, to between 15% and 25%. Income tax rates will be indexed to inflation, reducing the tax burden of low-income Filipinos, while the value-added tax (VAT) rate will rise from 10% to 14% , and its base will be expanded to include sugar and fuel. The plan is projected to boost tax revenues to P2.48trn ($52.5bn) in 2017, a 10% increase over 2016, according to the Duterte administration (see analysis).

The 10-point socio-economic agenda also aims to promote rural economic growth and value chain development to support the agriculture sector, in addition to improving social protection programmes, including conditional cash transfers.

Prioritising Investment

The business climate features prominently in the 10-point plan, which emphasises reducing red tape and bureaucracy, boosting infrastructure spending and attracting higher levels of FDI inflows. Importantly for potential investors, the plan’s third pillar looks to improve competitiveness and the ease of doing business by relaxing constitutional restrictions on foreign investment in certain sectors. The country has lagged behind many of its regional peers in annual FDI inflows over the years, and the Joint Foreign Chambers (JFC) reported that FDI inflows averaged $3.97bn annually between 2011 and 2015, with Indonesia and Vietnam outpacing the country as a result of regulatory restrictions that have driven up the cost of doing business. FDI inflows moderated from $5.74bn in 2014 to $5.72bn in 2015, missing the government’s $6bn target. JFC estimates that $75bn in FDI inflows will be required to meet labour market growth between 2010 and 2020, though inflows between 2010 and 2015 totalled $20bn.

Competitiveness

While the country slipped six spots on the World Bank’s “Doing Business 2016” report, ranking 103rd out of 189 economies for ease of doing business, its rank improved to 99th out of 190 countries in the 2017 report. Regionally, it placed below Malaysia (23rd), Thailand (49th), Vietnam (82nd) and Indonesia (91st), but higher than Laos (139th). The country fell eight places on the “Global Competitiveness Report 2016-17” published by the World Economic Forum (WEF), to 57th out of 138 economies – its first drop in 10 years. The report found that the Philippines’ performance declined across seven of the 12 categories, including institutions, infrastructure, goods market efficiency, labour market efficiency, technological readiness, business sophistication and innovation. The WEF reports that the country appears to be falling behind its regional peers, with its score dropping 15 places to 83rd in technological readiness; 10 places to 52nd in business sophistication; and 14 places to 62nd in innovation. Its good market efficiency measure also fell 19 rungs to 99th. Citing inefficient bureaucracy, poor infrastructure, corruption, and an outdated and elevated tax regime as the most problematic factors in doing business, the WEF noted the country has one of the most onerous requirements in terms of the number of procedures to start a business.

Reforms

However, the government has proposed reforms that should boost future investment, including an expansion of its VAT base, revisions to the foreign negative investment list (see Trade & Investment chapter), and perhaps most importantly, a major push to deliver new infrastructure projects by increasing both public spending and private sector participation in major transport developments. This is already paying dividends: in 2016 the BSP reported that net FDI inflows rose to $7.93bn, exceeding the $6.7bn target for the year and representing a nearly $2.3bn increase over the $5.64bn recorded in 2015.

Spending

Although a planned spending increase in 2017 will see the country’s budget deficit reach 3% of GDP, the government’s tax reform plan has won praise from the IMF, with reforms seen as net revenue positive and expected to have a beneficial impact on the investment climate, further bolstering FDI inflows. With foreign investment expected to rise while tax collection rates improve, the government is well positioned to deliver a promised surge in infrastructure spending. Spending is set to rise by 12% to hit $72bn in 2017, with infrastructure allocations projected to reach 7% of GDP, well above previous targets of 5% (see analysis).

In contrast to President Duterte’s plans to increase spending, his predecessor’s tight fiscal policies saw successive declines in government debt levels. The national government’s debt-to-GDP ratio fell from a six-year high of 52.4% in 2010 to 49.2% by 2013. Debt levels dropped further to 45.4% in 2014, 44.8% in 2015 and 42.1% in 2016. Forecasts indicate the downward trend will continue in the 2017-19 period, according to the Bureau of the Treasury.

Prudent Planning

Much of this progress is the result of the bureau’s prudent debt management plan, which includes reducing debt service payments to between 14.3% and 16.9% of revenues, as well as minimising foreign exchange risk by limiting foreign-denominated debt and boosting the national government’s financing to an 80:20 mix of domestic and foreign currencies, from 2016 levels of 77:23.

Hedging against currency risk could become a critical priority for the new administration in light of ongoing depreciation. Although the peso rallied following Duterte’s May 2016 presidential election victory, it slumped to a seven-year low of P48.41:$1 on September 27, 2016. The peso has remained in a 10-year low since late that year, falling a further 1.6% against the US dollar in the opening months of 2017. Although the country has made good progress in reducing its exposure to forex risk in recent years, rising interest rates in the US will likely pose a challenge. For the second time in three months the US Federal Reserve hiked its benchmark rate by 25 basis points to 1% in March 2017. The move is broadly seen as a signal that regular hikes lay ahead. However, the strengthening US dollar has had a positive impact on the country’s external debt levels. External debt fell for the fourth straight year to $74.8bn by the end of 2016, compared to $77.5bn at end-2015. A $1.8bn downward foreign exchange revaluation adjustment helped to fuel a 2.4% quarter-on-quarter decline, according to Amando M Tetangco Jr, governor of the BSP.

Balance Of Payments

The country’s balance of payments posted a surplus in September 2016, despite the prospect of continued interest rate normalisation by the US Federal Reserve. The BSP reports that the surplus narrowed to $117m in September 2016, down from a five-month high of $682m in August, as a result of a challenging external environment and global volatility. September’s surplus was 46.6% lower than in September 2015, although the balance of accounts has been largely positive in recent months, recording a surplus in the seven months to December 2016 after a deficit of $1.06bn in January and February, according to BSP data. The country’s total balance of payments surplus stood at $1.65bn during the first nine months of the year, an 8.8% contraction from the same period in 2015, and gross international reserves reached $85.9bn in the same month. The year was expected to finish with a $2bn surplus, slightly lower than earlier targets of $2.2bn, with equity market and government securities inflows forecast to remain robust despite global uncertainty. The balance of payments remains in surplus in part due to cash remittances from overseas Filipino workers (OFWs), which have remained strong despite volatility in key job markets for those working abroad. At home, gains in the business process outsourcing (BPO) and tourism sectors have helped offset export losses, although falling export revenues remain a serious long-term concern.

Remittances

According to the most recent statistics available from the PSA, there were 12.4m OFWs working abroad between April and September 2015, of which 97.1% were classified as overseas contract workers, followed by workers without contract. The authority reports that 51.1% of OFWs are female, and 25.8% are between the ages of 25 and 29, with the next-largest demographic in the 30-to-34-year-old range, at 23.2%. The World Bank’s “Remittances Factbook 2016” forecast that remittances from OFWs would reach $29.7bn in 2015, making the Philippines the third-largest recipient of remittances globally after India, with $72.2bn, and China, with $63.9bn, but ahead of Mexico ($25.7bn), France ($24.6bn) and Nigeria ($20.8bn). The BSP, meanwhile, forecast that remittances flowing through the country’s bank system would rise by 5% in 2015, from $24.31bn in 2014, with the total value of remittances as a percentage of GDP expected to remain at 10%.

As of January 2017, remittances were up 8.6% y-o-y, with the BSP reporting that cash remittances amounted to $2.17bn that month, $172m higher than the $1.99bn logged during the same period of 2016. Personal remittances were up 8.6% at $2.39bn in January, an increase from $2.21bn recorded in the same period of 2016, according to central bank data. Tetangco told local press that remittances from the US rose by 9.2% and accounted for three percentage points of the total increase recorded in January. Remittances from land-based Filipino workers increased by 13.5% to $1.8bn, while those from seafaring workers declined by 8.3% to $400m. Cash remittances were noted as a key source of rising income, and were up 5% to a record high of $26.9bn during 2016.

Services Economy

Although remittances have long been a critical source of income for thousands of families in the Philippines, rapid BPO and tourism expansion, as well as strong projected growth in the construction, real estate and financial services sectors could see the economic contribution of remittances become less critical in the coming years. The growth outlook for the BPO sector, for example, remains positive after years of extremely rapid expansion, with the country moving to replace India as the world’s top BPO destination in just a few short years (see BPO chapter).

In April 2016 the IT and Business Process Association of the Philippines reported that the country’s BPO industry was responsible for 1.2m direct jobs and $22bn in revenues in 2015. The BSP has projected that should the industry’s current growth rates continue, industry revenues will overtake remittances from OFWs by 2017. In October 2014 research consultancy Tholons forecast industry revenues would rise to $48bn by 2020, after recording annual growth rates in the range of 9% to 12% between 2004 and 2014.

Tourism is another major potential growth driver, with the industry recording robust growth in 2015 and 2016, and further expansion expected in 2017. The Department of Tourism reports that total visitor arrivals rose by 10% to 5.3m, generating $6bn in revenue. In 2016 European markets posted the top growth rates in tourism arrivals to the Philippines. Spain sent the most visitors, accounting for 32.9% of growth in 2016, followed by France (+21.7%) and Germany (+14.6%). In January 2017 China added itself to the list of major contributing countries of origin, with a 75% rise in visitors sent that month and the Department of Tourism anticipating a 50% increase for the entire year to 1m.

Agriculture vs Manufacturing

Promotion of value-added agricultural products is a key priority, after the agriculture sector recorded a lacklustre performance in 2015 and 2016. In its most recent report on the sector in August 2016, the PSA noted that agricultural output contracted by 0.96% in 2015, after being negatively affected by a long dry spell and Typhoon Koppu, known locally as Typhoon Lando. The gross value of production fell by 6.64% over the year to P448bn ($9.5bn), driven by a 2.69% contraction in the crops subsector, which accounted for 51.8% of agricultural output. Rice and corn production dipped by 3.78% and 6.04%, respectively. Although the cash crops subsector, which includes coconuts, banana, pineapple, coffee and tobacco, increased its total production, earnings declined by 11.05% to P259.7bn ($5.5bn). The PSA reports that on an annual basis, farmgate prices dropped by roughly 4.78% in the fourth quarter of 2015.

New industrial and manufacturing investment offers perhaps the best near-term solution to employment and revenue losses, and on this front the government is actively seeking new investment. NEDA reports that the country’s manufacturing volume of production index rose by 11.2% in February 2016 and 7.8% in March 2016, while its value of production index rebounded from a 5.6% contraction in February to hit 1.9% growth in March. Growth in the first quarter of 2016 was supported by increased food and consumer product volumes, which rose by 15.3% and 82.6%, respectively. Buoyant domestic demand, stable inflation and low oil prices are expected to underpin growth in 2017, but NEDA called on the government to strengthen links between the agriculture and manufacturing sectors in order to fully capitalise on growth opportunities.

In addition to business reforms, the 10-point socio-economic plan has prioritised land reforms enabling unused farm land to be developed into new industrial developments, including special economic zones and industrial estates. These early announcements supported growth in late 2016 – manufacturing output reached a yearly high in September, with Nikkei Philippines reporting its Manufacturing Purchasing Managers Index hit 57.5, up from 55.3 in August, its highest level since the index was launched in January 2016. Rising foreign investment and low fuel prices should help the sector maintain its steady upward growth trajectory, offering an important new source of employment and income as industrialisation advances.

Outlook

The IMF upgraded its 2017 target for GDP growth to 6.8% as a result of robust domestic demand, a gradual recovery in exports and fiscal stimulus. The bank had noted in August 2016 that GDP growth between 7% and 8% is attainable over the medium term, while also painting a positive near-term outlook. Although a worsening infrastructure deficit, poverty and underemployment, and weaker global export demand have presented challenging headwinds, the Philippines’ economy is on track to surpass recent highs. The services sector will offset losses in agriculture, while manufacturing and industrial growth provide promising employment opportunities, supporting growth in value-added production. Infrastructure spending is also set to become a major driver, with new transportation projects slated to improve trade flows and reduce operating costs. At the same time, fiscal and debt management policies should keep borrowing at sustainable levels, as ongoing reforms keep the government on track to meet its growth targets.