IMF Executive Board Concludes 2023 Article IV Consultation with the Philippines
December 15, 2023
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation [1] with the Philippines.
The Philippines’ growth momentum started to moderate after a strong post-pandemic recovery. Growth moderated from 7.6 percent in 2022 to 4.3 percent in the second quarter of 2023, largely due to external headwinds, fiscal underspending, and normalization of pent-up demand. Headline inflation decelerated to 4.9 percent in October from the peak of 8.7 percent in January but is facing renewed price pressures and the BSP has preemptively raised the policy rate by a further 25bps in October. Core inflation also remains elevated at 5.3 percent in October. The labor market has normalized, driven by the service sector. The current account deficit is narrowing, supported by lower imports of fuel and capital goods and a strong recovery in the service sector. International reserves remain adequate. Domestic financial conditions have tightened due to more stringent credit standards and a weaker exchange rate.
Growth is expected to bottom out in 2023. Real GDP growth is expected to bounce back in the second half of 2023 and reach 6.0 percent in 2024, supported by an acceleration in public investment and improved external demand for the Philippines’ exports. The government’s infrastructure program, opening up of sectors to greater foreign investment, and private sector participation through PPP modalities will gradually crowd in private investment and help realize a growth potential of about 6–6½ percent over the medium term. Inflation is projected to gradually approach the target in early 2024, though recurrent supply shocks cloud the disinflation trajectory. The current account deficit is expected to continue to narrow in 2024. Risks to the growth outlook are tilted to the downside, mainly stemming from persistently high inflation, globally and locally, and a highly uncertain global economic and geopolitical environment. Upside risks to the inflation outlook include higher commodity prices and potential second-round effects.
Executive Board Assessment[2]
Executive Directors noted that, after recovering strongly from the pandemic, the Philippine economy has withstood a confluence of shocks. Against this backdrop, Directors commended the authorities for their appropriate policy response and the recent implementation of key structural reforms to stimulate exports, spur foreign investment, and raise growth potential. Noting that risks to the outlook are tilted to the downside, Directors recommended maintaining prudent policies to further rein in inflation, preserve fiscal sustainability, and increase financial resilience. Sustaining efforts to address structural challenges is also important.
Directors agreed that monetary policy has been tightened appropriately to anchor inflation expectations. They emphasized the need to maintain a restrictive policy stance until inflation fully returns to target and to remain ready to tighten further should upside risks to inflation materialize. While allowing the exchange rate to continue to absorb shocks remains crucial, temporary foreign exchange interventions under limited circumstances may be considered to ensure orderly market conditions and address risks to price stability. Directors also noted the importance of strengthening coordination between the central bank and the Bureau of the Treasury to further develop the benchmark yield curve.
Directors welcomed that the banking sector is well-capitalized and liquid. Noting potential pockets of vulnerabilities, they agreed that banks’ exposure to commercial real estate and leveraged corporates warrants close monitoring. Directors welcomed the recent progress in strengthening financial supervision and regulation and the initiative to revamp the bank resolution framework, and encouraged continued efforts in these areas. They called for further strengthening the AML/CFT framework to exit the FATF grey list.
Directors supported the pace of fiscal consolidation envisaged under the medium-term fiscal framework. At the same time, they recommended adopting additional medium-term tax measures to create more fiscal space for policy priorities and social spending. Directors welcomed the authorities’ commitment to reform the military and uniformed personnel’s pension system and to improve expenditure efficiency through digitalization.
Directors agreed that sustained efforts to reduce infrastructure and education gaps and to harness the digital economy are needed to reap the benefits of the demographic dividend. They stressed the importance of strengthening governance and improving the ease of doing business. Directors also underscored that creating quality jobs and further enhancing education and social protection programs would help reduce poverty and inequality. They encouraged efforts to build resilience to natural disasters and climate risks, including by prioritizing climate resilient infrastructure.
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Table 1. Philippines: Selected Economic Indicators, 2020–2025 |
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2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
|
|
Est. |
Proj. |
Proj. |
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|
(Annual percentage change, unless otherwise indicated) |
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|
National account |
||||||
|
Real GDP |
-9.5 |
5.7 |
7.6 |
5.3 |
6.0 |
6.1 |
|
Consumption |
-5.3 |
4.7 |
7.7 |
4.0 |
5.7 |
6.5 |
|
Private |
-8.0 |
4.2 |
8.3 |
5.0 |
6.2 |
6.9 |
|
Public |
10.5 |
7.2 |
4.9 |
-0.4 |
3.0 |
4.3 |
|
Gross fixed capital formation |
-27.3 |
9.8 |
9.7 |
7.7 |
11.2 |
10.8 |
|
Final domestic demand |
-10.5 |
5.7 |
8.1 |
4.8 |
6.8 |
7.4 |
|
Net exports |
4.0 |
-2.3 |
-2.2 |
0.0 |
-1.5 |
-1.8 |
|
Real GDP per capita |
-10.7 |
4.3 |
6.2 |
4.1 |
4.9 |
5.0 |
|
Output gap |
-8.5 |
-3.5 |
0.4 |
0.0 |
0.1 |
0.1 |
|
Labor market |
||||||
|
Unemployment rate |
10.4 |
7.8 |
5.4 |
4.7 |
5.1 |
5.6 |
|
Underemployment rate |
16.2 |
15.9 |
14.2 |
12.8 |
… |
… |
|
Employment |
-6.1 |
11.7 |
6.6 |
2.4 |
1.6 |
1.6 |
|
Price |
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|
Consumer prices (period average) |
2.4 |
3.9 |
5.8 |
6.0 |
3.7 |
3.0 |
|
Consumer prices (end of period) |
3.3 |
3.1 |
8.1 |
4.5 |
3.2 |
3.0 |
|
Core consumer prices (period average) |
3.4 |
3.0 |
3.9 |
… |
… |
… |
|
Residential real estate (Q4/Q4) |
0.8 |
4.9 |
7.7 |
… |
… |
… |
|
Money and credit (end of period) |
||||||
|
3-month PHIREF rate (in percent) 1/ |
1.3 |
1.5 |
5.7 |
… |
… |
… |
|
Claims on private sector |
52.0 |
49.9 |
48.9 |
47.7 |
48.3 |
48.6 |
|
Claims on private sector |
-0.2 |
3.8 |
11.0 |
7.7 |
10.6 |
9.7 |
|
Monetary base |
5.1 |
5.8 |
5.1 |
6.0 |
6.5 |
8.9 |
|
Broad money |
8.7 |
8.0 |
7.8 |
7.6 |
8.9 |
8.2 |
|
Public finances (in percent of GDP) |
||||||
|
National government overall balance 2/ |
-7.4 |
-8.3 |
-7.2 |
-5.7 |
-5.0 |
-4.6 |
|
Revenue and grants |
15.9 |
15.5 |
16.1 |
15.7 |
16.4 |
16.7 |
|
Total expenditure |
23.4 |
23.8 |
23.3 |
21.4 |
21.4 |
21.3 |
|
National government gross debt |
54.6 |
60.4 |
60.9 |
61.1 |
61.1 |
60.9 |
|
Balance of payments (in percent of GDP) |
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|
Current account balance |
3.2 |
-1.5 |
-4.5 |
-3.0 |
-2.6 |
-2.3 |
|
FDI, net |
-0.9 |
-2.5 |
-1.3 |
-1.0 |
-1.1 |
-1.1 |
|
Total external debt |
27.2 |
27.0 |
27.5 |
27.5 |
27.1 |
26.5 |
|
Gross reserves |
||||||
|
Gross reserves (US$ billions) |
110.1 |
108.8 |
96.1 |
98.1 |
93.4 |
89.4 |
|
Gross reserves |
478.4 |
512.3 |
381.3 |
351.0 |
372.3 |
332.0 |
|
Memorandum items: |
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|
Nominal GDP (US$ billions) |
361.8 |
394.1 |
404.3 |
434.9 |
471.8 |
510.3 |
|
Nominal GDP per capita (US$) |
3,326 |
3,576 |
3,624 |
3,853 |
4,133 |
4,423 |
|
GDP (in billions of pesos) |
17,952 |
19,411 |
22,025 |
24,312 |
26,565 |
28,934 |
|
Real effective exchange rate (2010=100) |
111.3 |
111.1 |
109.3 |
… |
… |
… |
|
Peso per U.S. dollar (period average) |
49.6 |
49.3 |
54.5 |
… |
… |
… |
|
Sources: Philippine authorities; World Bank; and IMF staff estimates and projections. |
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1/ Benchmark rate for the peso floating leg of a 3-month interest rate swap. |
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2/ IMF definition with privatization receipts, equity, and net lending excluded. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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