IMF Executive Board Concludes 2011 Article IV Consultation with the Philippines

Public Information Notice (PIN) No. 12/21
March 5, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2011 Article IV Consultation with the Lebanon is also available

On February 17, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Philippines.1


The Philippines is being affected along with other countries in the region by the fragile global environment. After reaching 7.6 percent in 2010, growth slowed to 3.7 percent in 2011. The slowdown reflected a fall in electronics exports and lower public construction. Exports were subdued by the weak global environment and by supply chain disruptions following the March 2011 Japan earthquake tragedy. Public construction fell as a result of improved budget processes that temporarily slowed down project approvals and also reduced costs. Unemployment and underemployment remain relatively high, at over 7 percent and 19 percent, respectively.

Financial conditions have remained supportive of growth. Real lending rates are well below pre˗crisis levels, interbank and short˗term government bond yields remain below policy rates, and credit growth is rapid (19.3 percent, year-on-year, as of December). These monetary conditions have not, however, led to inflation pressure because of the emerging slack in the economy.

Inflation pressures have continued to decline. For 2011 as a whole, headline inflation averaged 4.4 percent. Headline inflation moderated slightly faster than expected to 3.9 percent (year/year) in January, from 4.2 percent in December, largely owing to food prices.

The financial sector has been resilient to the global turbulence so far. Banking sector indicators remain consistent with the 2010 Financial System Stability Assessment (FSSA) of the sector’s soundness. Financial markets were buffeted during the period of emerging market stress in August˗ September, but recovered in subsequent months. The Bangko Sentral ng Pilipinas (BSP)’s recent bank stress testing exercise suggested that the banking sector is well placed to withstand the direct effects of a range of shocks. The financial system has only limited exposure to Europe but contagion could occur through pullbacks of credit by European banks. The prominent role of conglomerates as recipients of bank credit and the high leverage in parts of the corporate sector, call for a close monitoring of conglomerates. Rapid credit growth may pose risks for lending standards and asset quality as the credit cycle matures including in the real estate sector.

Fiscal policy has contracted more sharply than the authorities envisaged. The national government deficit for 2011 (P 96 billion; 1 percent of GDP during January-November) fell substantially short of the annual budget objective (P 300 billion; 3 percent of GDP) mainly reflecting lower capital expenditure, particularly on public construction. In October, the government announced a fast˗tracking of spending of about 0.7 percent of GDP on infrastructure, local government transfers, and job training that has provided a stimulus to growth in late 2011. However, for the year as a whole the staff expects the deficit to fall to 1½ percent of GDP, which would represent a fiscal withdrawal of 1.8 percent of GDP.

External headwinds are affecting exports, but the balance of payments position remains in sizable surplus reflecting continued net inflows in both the current and capital and financial accounts. Remittances, BPO exports, and capital inflows have offset the impact of lower electronics exports. During 2011, international reserves rose by nearly $13 billion to $75.3 billion (11 months of imports). The BSP forward book, meanwhile, declined by about $11 billion, with most of the decline occurring in September when the Philippines was among the Asian economies affected by the rise in global risk aversion and reversal of capital flows from emerging markets. The episode led to a temporary drop in reserves and the exchange rate and a jump in sovereign spreads. During 2011 as a whole, the peso remained stable in nominal and real effective terms.

Executive Board Assessment

Executive Directors commended the authorities for prudent policies that have underpinned a strong recovery and supported confidence. Directors noted the outlook for the near term is broadly favorable, but subject to significant external risks. In this context, the key policy challenge is to safeguard macroeconomic stability while building the foundations for stronger and more inclusive growth over the medium term.

Directors agreed that monetary policy has responded well to changing circumstances. They considered that monetary conditions are appropriately supportive of economic activity and that inflation is firmly in the middle of the target range. Noting that monetary transmission could be enhanced, Directors recommended the swift approval of amendments to the central bank act that would strengthen liquidity management and enhance policy effectiveness.

Directors supported the central bank’s policy of allowing orderly adjustments of the exchange rate to market pressures. With official reserves well above standard precautionary metrics, they concurred that reserves could be drawn down to mitigate the impact of capital reversals, if needed. Directors also saw scope for further flexibility of the exchange rate in response to sustained inflows.

Directors regarded fiscal policy as appropriately focused on supporting growth in the near term while aiming for consolidation over the medium term. Directors welcomed the ongoing expenditure reorientation toward social and infrastructure priorities. Noting, however, that higher revenue will be needed to meet the authorities’ objectives, they supported the authorities’ efforts to strengthen tax administration and recommended further measures to reform excises, rationalize tax incentives, and broaden the tax base.

Directors took note of the resilience of the financial sector in a challenging environment. They encouraged the authorities to continue monitoring potential pressure points, including concentration and interest rate risks at banks, real estate exposures of nonbanks, and channels for inward spillovers of global financial turbulence. More broadly, Directors recommended further strengthening the supervisory and regulatory framework as well as the AML/CFT regime.

Directors supported the authorities’ emphasis on building faster and more inclusive growth. They welcomed the focus of the Philippine Development Plan on improving governance, infrastructure, human capital, and social safety nets, as well as access to finance. Progress in these areas will help to spur investment, boost growth, and reduce poverty.

Philippines: Selected Economic Indicators, 2008–13
  2008 2009 2010 2011


2012 2013
        Staff proj.

GDP and prices (percent change)


Real GDP

4.2 1.1 7.6 3.7   4.2 4.7

CPI (annual average)

9.3 3.2 3.8 4.5   4.0 4.0

CPI (end year)

8.0 4.3 3.1 4.6   4.4 4.0

Investment and saving (percent of GDP)


Gross investment

19.3 16.6 20.5 20.8   20.6 21.0

National saving 1/

21.4 22.1 25.0 24.0   22.5 22.8

Public finances (percent of GDP)


National government balance (authorities definition)

-0.9 -3.7 -3.5 -1.5   -2.6 -2.0

National government balance 2/

-1.4 -3.8 -3.6 -1.5   -2.7 -2.0

Nonfinancial public sector balance 3/

-0.3 -3.2 -3.4 -0.6   -2.3 -1.7

Revenue and grants 4/

22.0 19.9 18.4 18.3   18.6 19.0


22.3 23.1 21.8 18.9   21.0 20.7

Nonfinancial public sector debt

58.2 58.1 53.5 51.3   50.6 48.8

Monetary sector (percent change, end of period)


Broad money (M3)

10.0 8.6 10.9 7.2


Interest rate (91-day treasury bill, end of period, in percent) 6/

5.8 4.3 1.3 1.7


Credit to the private sector 8/

20.5 10.0 8.9 22.5


External sector


Export value (percent change)

-2.5 -22.1 34.9 -1.5   0.5 3.4

Import value (percent change)

5.6 -24.0 32.9 7.7   2.1 4.7

Current account (percent of GDP)

2.1 5.6 4.5 3.2   1.8 1.9

Capital and financial account (US$ billions,


excluding errors and omissions)

-1.6 -1.6 7.3 4.0   3.6 3.6

Direct investment (net)

1.3 1.6 1.2 1.0   1.1 1.1


-2.9 -3.2 6.1 3.0   2.5 2.5

Errors and omissions (US$ billions)

-1.9 -1.3 -2.0 0.0   0.0 0.0

Overall balance (US$ billions)

0.1 6.4 14.3 10.9   7.8 8.1

Total external debt (percent of GDP) 10/

37.6 38.5 36.9 36.5   36.5 36.2

Debt service ratio 11/

12.7 14.3 11.2 12.5   12.2 13.6

Reserves, adjusted (US$ billions) 12/

35.9 44.2 62.4 75.3   84.7 94.8

Reserves/short-term liabilities, adjusted 13/

283.2 391.3 375.8 469.1   463.3 504.0

Exchange rate (period averages)


Pesos per U.S. dollar

44.5 47.6 45.1 43.3  

Nominal effective exchange rate (2005 =100)

113.5 106.7 109.4 108.5  

Real effective exchange rate (2005 =100)

124.5 121.2 126.8 127.5  

Sources: Philippine authorities; and IMF staff projections.


1/ The saving rate (percent of GDP) is calculated as the sum of the investment rate (percent of GDP) and the current account (percent of GDP).

2/ Fund definition. Excludes privatization receipts and includes deficit from restructuring of the central bank (Central Bank-Board of Liquidators).

3/ Includes the national government, Central Bank-Board of Liquidators, 14 monitored government-owned enterprises, social security institutions, and local governments.

4/ Excludes public financial institutions and privatization receipts.

5/ November 2011 (year-on-year).

6/ Secondary market rate.

7/ December 2011.

8/ Commercial Banks Loans excluding BSP Reverse Repurchase Agreements.

9/ November 2011.

10/ Includes liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, external debt not registered with the central bank, and private capital lease agreements.

11/ In percent of exports of goods and nonfactor services.

12/ Adjusted for gold and securities pledged as collateral against short-term liabilities.

13/ Short-term liabilities include medium- and long-term debt due in the following year.

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. 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:


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