Press Release No. 24/211

IMF Staff Concludes Visit to the Philippines

June 10, 2024

• The Philippine economy performed strongly in 2023 despite a challenging external environment. GDP growth is expected to reach 6.0 percent in 2024, supported by a pick-up in domestic demand and exports.
• After peaking at 6.0 percent in 2023, inflation is expected to decline to 3.4 percent in 2024. While inflationary risks have moderated recently, they remain tilted to the upside, and the monetary policy stance should remain sufficiently restrictive to firmly anchor inflation within the target band.
• Fiscal consolidation is underway, though at a slower pace than initially envisaged. Revenue mobilization remains critical to support inclusive growth and strengthen debt sustainability over the medium term.

Washington, DC: An International Monetary Fund team led by Ms. Elif Arbatli Saxegaard held meetings in Manila during June 4-10, 2024, to discuss recent economic and financial developments and the outlook for the Philippine economy. At the end of the visit, Ms. Arbatli Saxegaard issued the following statement:

“The Philippine economy continues to perform well despite external challenges and policy tightening. GDP growth moderated in 2023 to 5.5 percent, due to the confluence of global shocks, inflationary pressures, and slowing consumption. Growth is expected to rebound to 6.0 percent in 2024 and 6.2 percent in 2025, on the back of stronger consumption demand, higher public and private investment, and a recovery in exports. Downside risks to the outlook stem from geoeconomic fragmentation, high interest rates, and climate-related shocks, while efforts to attract foreign direct investment, promote business-friendly reforms, and enhance competitiveness could raise the economy’s long-term growth potential.

“The Bangko Sentral ng Pilipinas (BSP) has addressed inflationary pressures by holding the policy rate at 6.5 percent after a cumulative 450 basis points hike since May 2022. After peaking in early 2023, inflation has declined to within the BSP’s target band, with lower commodity prices supporting the normalization. While higher prices of food have recently led to an uptick, inflation is projected to decline towards the target of 3.0 percent in the second half of the year. Risks to inflation remain to the upside, stemming from geopolitical tensions and recurrent commodity price volatility. In this context, the recent reduction in tariffs on rice imports from 35 to 15 percent in the second half of the year, along with the decision to streamline administrative procedures and remove non-tariff barriers in the importation of agricultural products can play an important role in mitigating food price increases and their impact on vulnerable households. The BSP should continue to maintain a sufficiently restrictive policy stance to firmly anchor inflation expectations. The current account deficit is expected to narrow from 2.6 percent of GDP in 2023 to 2.1 percent in 2024 mainly due to a rise in goods exports and tourism, and reserves remain robust at US$102.7 billion in April 2024.

“Fiscal consolidation is set to continue over the medium term, though at a slower pace than initially envisaged. The latest Medium-Term Fiscal Program presents a more pro-growth fiscal stance anchored around higher capital spending and a more gradual increase in revenues over the medium term. The revised consolidation plan remains ambitious, implying a reduction in the fiscal deficit from 6.2 percent of GDP in 2023 to 3.7 percent of GDP in 2028, but it will be important to ensure that social protection programs, universal health care coverage, and higher education outlays are appropriately enhanced. Revenue mobilization remains critical to sustain a credible medium-term fiscal consolidation strategy, rebuild buffers, and create space for poverty reduction efforts. Tax administration improvements should be supplemented with tax policy changes, notably to improve the efficiency of value-added tax and broaden the tax base.  

“Financial stability risks appear contained, and credit growth remains healthy despite higher lending rates. The banking system has strong capital and liquidity buffers, and the expected normalization of monetary policy will further support domestic demand. Nonetheless, banks’ exposures to commercial real estate and leveraged corporates warrant close monitoring in the current high interest rate environment. Continued progress with improving Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) effectiveness and completion of the Philippines’ Action Plan with the Financial Action Task Force (FATF) are critical to improve the business environment and encourage foreign direct investment.

“Recent reforms to attract foreign investment and create a business-friendly environment aim to diversify the economy and develop the country’s growth potential. Implementation will be key, with careful selection of projects to reduce infrastructure gaps, building on the recently passed Public-Private Partnership Code. Additional efforts should center on upskilling the labor force, and enhancing the capacity of the local government units. Climate change adaptation and mitigation targets should benefit from a recent measure to facilitate foreign ownership in the renewable energy sector and ongoing efforts to promote green finance.  

“The IMF team would like to thank officials in the government, the central bank, other public agencies, and representatives of the private sector for their constructive and open engagement. We look forward to continuing the dialogue in the coming months in the context of the 2024 Article IV Consultation.”