The International Monetary Fund (IMF) sees inflation rising to 3.6 percent in 2017 even as the outlook for the Philippine economy continues to be favorable.

Inflation last January was at 2.8 percent, a two-year high, from year-ago figure of 1.8 percent, the Philippine Statistics Authority said.

An IMF mission which ended its four-day visit on February 24 said in a statement on Friday inflation is expected to rise “ due to higher commodity prices, pass through currency depreciation, and strong economic activity.”

Budget deficit is also seen increasing to three percent due to “higher infrastructure and social spending,” the IMF said.

Growth is forecast at 6.8 percent but this outlook “is subject to downside risks, including from lower regional growth, capital outflows from US monetary policy tightening and heightened global policy environment,” the IMF said.

The IMF said “passing the first package of the comprehensive tax reform proposal is critical to sustain the rise in expenditures targeted in the medium-term fiscal framework, which is anchored on the three percent of GDP (gross domestic product) deficit.” DMS