## cr17334

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### Macroeconomic outlook and key projections
- Real GDP growth:
  - 2017: 6.6 percent
  - 2018: 6.7 percent
- Real GDP per capita:
  - 2017: 4.5 percent
  - 2018: 4.6 percent
- CPI (annual average):
  - 2017: 3.1
  - 2018: 3.0
- CPI (end year):
  - 2017: 2.9
  - 2018: 3.0
- Output gap (Selected Economic Indicators series): -0.3, 0.5, 0.3, -0.1, 0.1, 0.0, -0.1
- Assessment:
  - Growth outlook described as “favorable despite external headwinds.”
  - Current account balance (CAB) projected to record a small deficit in 2017 because of strong infrastructure-related import growth.
  - CAB projected to turn into deficit starting in 2017 due to robust import growth.

### Fiscal stance, debt, and tax reform
- National government deficit:
  - Reported at 2.4 percent of GDP (IMF definition) for the period referenced.
- Selected public finance series (percent of GDP):
  - National government balance (authorities' definition): -2.3, -1.4, -0.6, -0.9, -2.4, -3.0, -3.0
  - National government balance (IMF definition): -2.4, -1.5, -0.6, -1.4, -2.4, -3.0, -3.0
  - Nonfinancial public sector balance: -0.6, 0.6, 0.9, 0.4, -0.3, -0.8, -0.9
  - Revenue and grants: 19.4, 20.2, 19.8, 19.7, 19.4, 19.5, 19.5
  - Expenditure: 20.0, 19.6, 18.9, 19.3, 19.7, 20.3, 20.4
  - Nonfinancial public sector net debt: 53.0, 51.3, 47.9, 47.2, 44.7, 42.9, 41.2
- Staff position:
  - Supports gradual scale-up of productive infrastructure and targeted social spending while keeping a broadly neutral fiscal stance.
  - Supports 3 percent of GDP national government deficit ceiling to reinforce credibility and keep general government net debt on a stable path.
  - Welcomes the first tax reform package and encourages consideration of additional revenue measures.
- Tax reform cautions and recommendations:
  - Caution: reform revenue yield may be lower than projected because of dilution in Congress.
  - Consider: lowering the threshold for PIT; raising the VAT rate; rationalizing tax concessions and exemptions; accelerating implementation of new excises on automobiles and petroleum products.
  - Recommendation: increase priority spending financed through additional revenue mobilization, including by widening the tax base, to keep fiscal stance broadly neutral and avoid overheating.

### Monetary policy and liquidity management
- Policy stance:
  - Policy rate: 3 percent (real policy rate near zero).
  - Effective policy rate (weighted average on all sterilization instruments) has risen by 60 basis points since mid-2016 through reform of monetary operations.
  - Stance judged appropriate; BSP should be ready to tighten if overheating emerges.
- Reserve requirements and reform guidance:
  - Unremunerated reserve requirements (RRs) for banks: 20 percent.
  - Authorities intend to unwind high RRs over time; reform should be carefully calibrated and timed and aim to keep domestic liquidity broadly unchanged.
  - BSP options to offset liquidity released by RR reductions include: (i) increasing size of term deposit auctions and allowing higher interest rates in auctions; (ii) considering unsterilized sales of foreign reserves when FX flows decline; (iii) remunerating RRs during transition.
  - Effective communication of the reform impact is crucial.
- Monetary sector indicators:
  - Broad money (M3) year-on-year latest observation (July 2017): 13.5 (percent)
  - Interest rate (91-day treasury bill, end of period): 2017: 2.2 (percent)
  - Credit to the private sector: 2017: 19.7 (percent)
- Exchange rate guidance:
  - Exchange rate should continue to move freely in line with market forces, with FX intervention limited to smoothing excessive volatility in both directions.

### Financial stability, macroprudential policy, and banking sector risks
- Main systemic risks:
  - High credit growth and concentration, especially credit growth to the real estate and household sectors.
  - Some conglomerates and real estate developers leveraged significantly; shadow-banking activities expanded.
- Banking sector soundness:
  - FSIs indicate ample liquidity, high capital, and low NPLs.
  - Household leverage around 18 percent of GDP.
- Credit trends and concerns:
  - Credit growth accelerated from 13.6 percent in 2015 to 19.7 percent in July 2017.
  - Consumer loans growing at over 20 percent since mid-2016.
  - Real estate loans continued to grow at around 19 percent.
  - Some credit gap indicators could approach early warning levels in 2017−18.
- Macroprudential recommendations:
  - Use macroprudential policies to address systemic risks.
  - Raise capital requirements in case of a broad-based credit boom, supported by monetary tightening if accompanied by overheating.
  - Deploy targeted macroprudential measures for excessive sectoral credit growth.
  - Consider higher risk weights or provisioning for real estate loans above certain LTV thresholds and on DTI ratios for household loans.
- Regulatory and legislative priorities:
  - Amend BSP Charter to: (i) introduce a financial stability mandate; (ii) extend the supervisory perimeter; (iii) establish legal protection for supervisors; (iv) increase the BSP’s capital; (v) allow the BSP to issue its own securities.
  - Staff welcomes early adoption of Basel III guidelines and the new financial stability department at the BSP.
  - Staff supports legal access to information on conglomerates’ finances and the introduction of a consumer credit bureau database.

### External sector and reserves
- External position assessment:
  - Described as “moderately stronger than warranted by fundamentals and desirable policies.”
  - CAB remains above its estimated norm largely due to inadequate infrastructure; the gap expected to close over time as infrastructure is upgraded.
  - REER undervaluation estimated between zero and 4 percent, considering the estimated CAB gap and structural impediments.
- Selected external statistics:
  - Current account (percent of GDP) series: 2.8, 4.2, 3.8, 2.5, -0.3, -0.1, -0.3
  - Reserves (US$ billions): 83.8, 83.2, 79.5, 80.7, 80.7, 80.9, 80.6
  - Total external debt (percent of GDP): 32.0, 28.9, 27.3, 26.5, 24.5, 23.0, 20.5
  - Reserves/short-term liabilities: 397.9, 406.2, 413.3, 409.5, 408.3, 399.1, 396.2
  - Pesos per U.S. dollar (Average January–August, 2017): 50.2
  - Nominal GDP per capita (US$): 2017: 3,023.0; 2018: 3,302.3
- Reserves adequacy:
  - Foreign reserves sizable and broadly justified by exposure to natural disaster and capital flow volatility.
  - Foreign reserves at US$81 billion (8.7 months of imports of goods and services) with limited FX intervention.

### Risks, scenarios, and policy guidance
- Risks:
  - Tilted to the downside and mainly external (e.g., lower growth in China, U.S. monetary policy tightening).
  - Domestic risks: high credit growth, buoyant private investment, and fiscal expansion without tax reform could lead to overheating, lower CAB, peso depreciation, and higher external borrowing costs.
  - Other domestic risks: natural disasters and security-related events.
- Scenario highlights:
  - Reform-and-spend scenario:
    - Assumes revenue rises from tax and administrative reforms and infrastructure spending increases by 2 percent of GDP and 1.6 percent by 2022; social spending rises by 0.4 percent of GDP.
    - Potential growth rises to 7.5 percent by 2022.
    - Inflation rises temporarily, then returns to target as capacity increases and monetary policy tightens.
    - Faster poverty reduction than baseline.
  - No reform-and-spend scenario:
    - Assumes tax reform brings no additional revenue; infrastructure spending financed by public debt.
    - National government deficit widens to 5.5 percent of GDP by 2022 and debt-to-GDP ratio increases by 7 percent.
    - Potential growth rises to 7 percent; output gap turns positive; CAB falls; peso depreciation and higher inflation and tighter monetary policy occur.
    - Poverty falls by less than in reform scenario.
- Main policy recommendations:
  - Fiscal: keep rise in priority spending in line with revenue gains; stick to current fiscal stance and deficit target; avoid procyclicality and tighten if growth is stronger than expected.
  - Monetary: remain ready to tighten if inflationary pressures build.
  - Macroprudential: use tools and be ready to raise capital requirements in case of a broad-based credit boom.
  - Structural: promote inclusion, reduce regional disparities, open to FDI, develop capital markets and financial inclusion, reduce gender gaps.

### Banking sector, credit developments, and monitoring priorities (Appendix I)
- Credit growth:
  - Increased from 13.6 percent in 2015 to 19.7 percent in July 2017.
  - Initial pickup drivers: credit to the service sector and consumer loans.
  - More recent drivers: credit to manufacturing and nonresident sectors.
- Sectoral growth rates:
  - Consumer loans: growing at over 20 percent since mid-2016.
  - Real estate loans: growth around 19 percent; largest banks’ exposure.
- Credit gap assessments (multiple methodologies):
  - Mendoza and Terrones (2008): credit aggregates close to trend.
  - Dell'Ariccia and others (2012): no evidence of credit booms.
  - IMF GFSR (2011) approach: rise in credit-to-GDP ratio close to 3 percent cutoff in 2016; could slightly surpass in 2017−18.
  - Drehmann and others (2010): credit-to-GDP ratio could exceed 10 percent of GDP cutoff in 2018.
- Monitoring priorities:
  - Consumer lending, real estate sector, manufacturing and nonresident sectors due to rapid growth and concentration risks.

### Public debt dynamics, external debt, and financing needs
- General government gross debt projection:
  - Fall from 42.7 percent of GDP in 2016 to 34.3 percent in 2022.
- Net debt projection:
  - Decline from 34.6 percent to 30.9 percent (period implied).
- Gross financing needs:
  - Remain around 3.5 percent of GDP throughout the projection period.
- External debt (baseline, percent of GDP):
  - 2012: 32.0; 2013: 28.9; 2014: 27.3; 2015: 26.5; 2016: 24.5; 2017: 23.0; 2018: 20.5; 2019: 18.3; 2020: 16.5; 2021: 15.0; 2022: 13.7
- Resilience:
  - A one-time exchange rate depreciation of 30 percent in 2017 raises external debt-to-GDP by about 9.3 percentage points; external debt still falls below current levels by 2022 under baseline.

### Tax reform (Appendix V) — first package highlights
- Rationale: revenue mobilization critical to finance infrastructure and human capital without undermining stability.
- Personal income tax (PIT):
  - Proposal raises the minimum taxable income from PHP 10,000 to PHP 250,000.
  - Number of tax brackets reduced from seven to six with a progressive schedule.
- Excises:
  - Diesel, kerosene, LPG, bunker oil: PHP 3 per liter in 2018; PHP 5 per liter in 2019; PHP 6 per liter in 2020.
  - Additional tax on other petroleum products (including gasoline, lubricating oils, and greases): PHP 8 per liter in 2018; PHP 9 per liter in 2019; PHP 10 per liter in 2020.
  - New tax on sugar-sweetened beverages: PHP 10 per liter (earmarked for the Health Promotion Fund).
  - Additional excise on automobiles progressive with rates linked to net selling price plus a fixed amount.
- VAT:
  - Proposal removes certain VAT exemptions (listed categories in source).
- Other measures:
  - Microbusinesses: flat rate of 8 percent for gross sales less than PHP 3 million (in lieu of income and VAT).
  - Donor’s tax: single rate of 6 percent on net donations for gifts exceeding PHP 100,000 annually.
  - Estate tax: single rate of 6 percent (with amnesty for taxable year 2016 and prior unpaid as of end-2016).
- Staff note: dilution in Congress could reduce revenue yield (excluding administrative reforms) from 0.9 percent of GDP to 0.5 percent in 2018, with smaller losses in the medium term.

### Financial inclusion, infrastructure, and structural priorities (Appendix VI and main text)
- Financial inclusion indicators:
  - Archipelago of 7,107 islands.
  - 36.2 percent of municipalities left without a physical banking office (Financial Inclusion Initiatives Report 2016).
  - As of 2014, about 28.1 percent of adults have an account at a financial institution.
  - Less than 5 percent have outstanding mortgage.
  - Only 30.8 percent of SMEs have bank loans or formal lines of credit.
- Priorities and recommendations:
  - Invest in infrastructure and human capital; reduce regional disparities; improve access to finance; capital market development; regulatory reforms to reduce business costs and open to foreign investment.
  - Eliminate quantitative restrictions in rice imports while supporting affected farmers.
  - Strengthen AML/CFT framework: amendment to include casinos welcomed; recommend amending bank secrecy law and making tax evasion a predicate crime.
  - Enhance financial literacy, digital financial services, and supervisory capacity.

### Data, institutional coordination, and IMF relations
- Statistical and data matters:
  - Date on document header: October 10, 2017.
  - Philippines subscribed to SDDS in August 1996.
  - Ongoing improvements: implementation of 2008 SNA; rebased CPI; BOP compilation based on BPM6 completed March 2014.
  - Data adequacy: broadly adequate for surveillance with some shortcomings and areas for improvement.
- IMF relations and TA:
  - Quota: SDR 2,042.90
  - Fund technical assistance highlights: tax administration (FAD), PFM reforms, risk-based supervision (MCM), statistics (STA).
  - Resident Representative stationed in Manila since January 1984; Mr. Yongzheng Yang took over in September 2017.
- Coordination:
  - IMF–World Bank collaboration on macro-critical structural areas: raising investment, strengthening PFM and spending efficiency, financial sector development and inclusion.

*International Monetary Fund staff report content (cr17334).*

### 8.7 months of imports of goods and services), the national government deficit at 2.4 percent of

### cr17334 - 8.7 months of imports of goods and services), the national government deficit at 2.4 percent of

### Macroeconomic outlook and key projections
- Real GDP growth is projected at 6.6 percent in 2017 and 6.7 percent in 2018, owing to continued robust domestic demand.
- Real GDP projected path in table: 2017: 6.6; 2018: 6.7 (percent change).
- Real GDP per capita: 2017: 4.5; 2018: 4.6 (percent change).
- CPI (annual average): 2017: 3.1; 2018: 3.0.
- CPI (end year): 2017: 2.9; 2018: 3.0.
- Growth outlook described as “favorable despite external headwinds.”
- Current account balance is projected to record a small deficit in 2017 because of strong infrastructure-related import growth.
- The current account balance is projected to turn into deficit starting in 2017 due to robust import growth.
- Output gap observations: -0.3, 0.5, 0.3, -0.1, 0.1, 0.0, -0.1 (as listed in the Selected Economic Indicators).

### Fiscal stance, debt, and tax reform
- National government deficit reported at 2.4 percent of GDP (IMF definition) for the period referenced.
- Staff supports the authorities’ plans to gradually scale up productive infrastructure and targeted social spending while keeping a broadly neutral fiscal stance.
- Staff supports the 3 percent of GDP national government deficit ceiling as a mechanism to reinforce policy credibility and keep the general government net debt on a stable path.
- Public finances (selected figures from table, percent of GDP):
  - National government balance (authorities' definition) series: -2.3 -1.4 -0.6 -0.9 -2.4 -3.0 -3.0
  - National government balance (IMF definition) series: -2.4 -1.5 -0.6 -1.4 -2.4 -3.0 -3.0
  - Nonfinancial public sector balance series: -0.6 0.6 0.9 0.4 -0.3 -0.8 -0.9
  - Revenue and grants: 19.4 20.2 19.8 19.7 19.4 19.5 19.5
  - Expenditure: 20.0 19.6 18.9 19.3 19.7 20.3 20.4
  - Nonfinancial public sector net debt: 53.0 51.3 47.9 47.2 44.7 42.9 41.2
- Staff welcomes the first tax reform package designed to create additional fiscal space, and encourages the authorities to consider additional revenue measures.
- Staff cautions that reform efforts may have a lower revenue yield than originally projected because of dilution in Congress and encourages consideration of: lowering the threshold for PIT, raising the VAT rate, rationalizing tax concessions and exemptions, and accelerating implementation of new excises on automobiles and petroleum products.
- Recommendation: increase priority spending financed through additional revenue mobilization, including by widening the tax base, to keep the fiscal stance broadly neutral and avoid overheating.

### Monetary policy and liquidity management
- The stance of monetary policy remains appropriate; the BSP should be ready to tighten if there are signs of overheating.
- Authorities’ intention to unwind the high banks’ reserve requirements over time would reduce macrofinancial risks, but the reform should be carefully calibrated and timed and aim to keep domestic liquidity broadly unchanged.
- Exchange rate guidance: the exchange rate should continue to move freely in line with market forces, with foreign exchange intervention limited to smoothing excessive volatility in both directions.
- Monetary sector indicators (from table):
  - Broad money (M3) year-on-year latest observation (July 2017): 13.5 (percent change, end of period for 2017 in table shows 13.5).
  - Interest rate (91-day treasury bill, end of period): 2017: 2.2 (percent).
  - Credit to the private sector: 2017: 19.7 (percent).

### Financial stability, macroprudential policy, and banking sector risks
- Main systemic risks: high credit growth and concentration, especially credit growth to the real estate and household sectors.
- Some conglomerates and real estate developers have leveraged significantly, and shadow-banking activities have expanded.
- Staff supports authorities’ efforts to have legal access to information on conglomerates’ finances.
- Macroprudential policy recommendations:
  - Use macroprudential policies to address systemic risks to financial stability.
  - In case of a broad-based credit boom, the BSP should raise capital requirements, supported by monetary policy tightening if accompanied by overheating.
  - Targeted macroprudential policies should be used if sectoral credit growth is excessive.
- Staff welcomes early adoption of Basel III guidelines and role of new financial stability department at the BSP.
- Recommendation to amend the BSP Charter to:
  - introduce a financial stability mandate;
  - extend the supervisory perimeter;
  - establish legal protection for supervisors;
  - increase the BSP’s capital;
  - allow the BSP to issue its own securities.

### External sector and reserves
- External position described as “moderately stronger than warranted by fundamentals and desirable policies.”
- The CAB remains above its estimated norm, largely due to inadequate infrastructure; the gap is expected to close over time as infrastructure is upgraded.
- The undervaluation of the REER is estimated between zero and 4 percent, considering the estimated CAB gap and structural impediments to investment.
- Foreign reserves remain sizable and broadly justified by exposure to natural disaster and capital flow volatility.
- Selected external statistics from table:
  - Current account (percent of GDP) series: 2.8 4.2 3.8 2.5 -0.3 -0.1 -0.3
  - Reserves (US$ billions): 83.8 83.2 79.5 80.7 80.7 80.9 80.6
  - Total external debt (percent of GDP): 32.0 28.9 27.3 26.5 24.5 23.0 20.5
  - Reserves/short-term liabilities: 397.9 406.2 413.3 409.5 408.3 399.1 396.2
  - Pesos per U.S. dollar (Average January-August, 2017): 50.2
  - Nominal GDP per capita (US$): 2017: 3,023.0; 2018: 3,302.3

### Structural and inclusion priorities
- Staff supports ongoing reforms aimed at lowering poverty and maximizing the demographic dividend through:
  - investing in infrastructure and human capital;
  - reducing regional disparities;
  - eliminating quantitative restrictions in rice imports;
  - improving access to finance including through capital market development;
  - regulatory reforms to reduce costs of doing business and openness to foreign investment to promote domestic competition.
- Staff welcomes amendment to the AML law to include casinos, and recommends further strengthening the AML/CFT framework by amending the bank secrecy law and making tax evasion a predicate crime.

### Risks and policy guidance
- Risks to the outlook are tilted to the downside and stem mainly from external sources; the combination of high credit growth, buoyant private investment, and fiscal expansion without tax reform could lead to overheating.
- Upside scenario: approval of the first tax reform package would lead to a sustainable increase in infrastructure investment.
- Policy guidance summary (Main policy recommendations):
  - Fiscal: keep rise in priority spending in line with revenue gains; stick to the current fiscal stance and deficit target; avoid procyclicality and adopt tighter stance if growth is stronger than expected.
  - Monetary: remain ready to tighten if inflationary pressures build.
  - Macroprudential: use macroprudential tools and be ready to raise capital requirements in case of a broad-based credit boom.
  - Structural: promote inclusion, reduce regional disparities, open to FDI, develop capital markets and financial inclusion, and reduce gender gaps.

*International Monetary Fund, Philippines: Staff Report for the 2017 Article IV Consultation.*

### 4.      The current account balance (CAB) fell

### 4.      The current account balance (CAB) fell

### Current account developments
- The CAB fell to near zero in 2016, from a surplus of 2.5 percent of GDP in 2015.
- Causes: a rise in imports of capital goods and slower growth of exports and remittances.
- Export growth recovered in H1:2017, while strong import growth continued.
- The peso depreciated by 7 percent vis-à-vis the U.S. dollar since end-2015, more than other currencies in the region.
- Foreign reserves remained stable at US$81 billion (8.7 months of imports of goods and services), indicating limited FX intervention.

### Banking sector stability and credit trends
- The banking sector appears sound based on financial soundness indicators (FSIs): ample liquidity, high capital, and low nonperforming loans (NPLs).
- Credit growth accelerated from 13.6 percent in 2015 to 19.7 percent in July 2017, led by consumer credit and real estate loans.
- Most indicators show no evidence of a credit boom so far; property prices have stabilized and lending standards have not deteriorated.
- Some indicators suggest credit gaps could approach early warning levels of credit booms in 2017−18 (Appendix I).
- Financial intermediation by nonbank financial institutions (NBFIs), not regulated by the BSP, remains small but is growing fast.
- The stock of bank credit and credit to households are low compared to peer countries, although both have been rising fast.

### Outlook and risks
- Medium-term outlook: growth projected at 6.6 percent in 2017, and 6.8 percent in the medium term, led by robust domestic demand.
- Baseline scenario assumptions: no tax reform; fiscal policy provides a boost to growth in 2017 and remains broadly neutral in 2018–22.
- Output gap estimated to remain near zero.
- Inflation expected to stay near the center of the target band due to stable commodity prices and well-anchored inflation expectations.
- CAB projected to remain negative in 2017 due to robust growth of infrastructure-related imports financed by FDI inflows, with international reserves declining slightly.
- Risks tilted to the downside, mainly external: spillovers from lower growth in China and U.S. monetary policy tightening.
- Domestic risks: combination of high credit growth, buoyant private investment, and fiscal expansion without tax reform could lead to overheating, lower CAB, peso depreciation, and higher external borrowing costs.
- Other domestic risks: natural disasters and security-related events.
- Upside: approval of the first tax reform package could raise infrastructure investment and potential growth.
- Assessment: Philippines well equipped to respond should risks materialize given strong fundamentals and available policy space.

### Scenario analysis (highlights)
- "Reform-and-spend" scenario (in line with authorities’ plans):
  - Assumes gradual increase in revenue from tax and administrative reforms and in infrastructure spending of 2 percent of GDP and 1.6 percent by 2022; a rise in social spending by 0.4 percent of GDP; structural reforms in capital and labor markets; removal of quantitative restrictions in rice imports.
  - Potential growth rises to 7.5 percent by 2022 due to higher investment and gains in productivity and employment.
  - Inflation rises temporarily due to demand impulse and tax reform, but returns to the target as productive capacity increases and monetary policy tightens.
  - Higher growth and social spending would lead to faster poverty reduction than in the baseline.
- "No reform-and-spend" scenario:
  - Assumes tax reform brings no additional revenue, infrastructure spending rises as in the first scenario financed with public debt, and no structural reforms.
  - National government deficit widens to 5.5 percent of GDP by 2022 and the debt-to-GDP ratio increases by 7 percent.
  - Potential growth rises to 7 percent.
  - Output gap turns positive, CAB falls, leading to peso depreciation and higher inflation and tighter monetary policy.
  - Poverty would fall by less than in the previous scenario.

### External sector assessment
- External sector has moved closer to equilibrium; external debt is sustainable.
- CAB has fallen but remains moderately stronger than warranted by fundamentals and desirable policies.
- CAB gap estimated at 1.7 percent of GDP in 2016 (3.2 percentage points less than in 2015); 1 percent due to policy gaps mainly from abroad and the remainder primarily due to inadequate infrastructure (Appendix III).
- Staff gives more weight to CAB gap estimates; assesses the REER gap at between zero and 4 percent considering the estimated CAB gap and inadequate infrastructure.
- IMF EBA models produce counterintuitive REER results, with a wide range of estimates and large unexplained residuals.
- Foreign reserves are sizable at 226 percent of the IMF’s reserve adequacy metric, broadly justified by exposure to natural disasters and capital flow volatility.
- External debt is moderate even after large shocks to interest rates, growth, or the exchange rate (Appendix IV).
- Exchange rate should continue to move freely, with intervention limited to smoothing excessive volatility in both directions.

### Authorities’ views (on projections and external assessment)
- Authorities broadly agreed with staff’s projections, risks, and scenario analysis.
- They view the domestic risk of overheating as modest and believe current growth momentum with low inflation is sustainable.
- They reiterated commitment to the 3 percent of GDP national government deficit target to prevent fiscal expansions after 2017.
- Authorities concurred that the CAB gap is due to external policy gaps and inadequate infrastructure and should close over time.
- Noted factors not captured by EBA models that explain external strength: remittances (10 percent of GDP), sales from the business process outsourcing industry (8 percent of GDP), and exposure to natural disasters leading to lower investment and higher precautionary savings.
- Emphasized need for more detailed explanation of large differences between REER gap estimates based on CAB gap and REER approaches.

### Policy priorities and fiscal policy (selected points)
- Main policy priorities: raise public spending in infrastructure, human capital, and social protection, financed by higher revenue, to make growth more inclusive and maximize the demographic dividend.
- Need to protect policy anchors, adapt policies to changing conditions, and maintain vigilance against risks (including high credit growth, loan concentration, and overheating).
- Fiscal space: general government net debt lowered from 68 percent of GDP in 2003 to 34.6 percent in 2016.
- Both gross financing and long-term adjustment needs manageable; low risk of debt stress under baseline and expansionary scenarios, but some vulnerability to macro-fiscal shocks (Appendix IV).
- With output gap closed, fiscal policy should be calibrated to balance against overheating risk; tighter fiscal stance appropriate if growth is stronger than expected in 2018 and beyond.
- Cyclically adjusted general government primary surplus narrowed to 1.4 percent of GDP in 2016 from 2.7 percent in 2015.
- Fiscal policy expansion in 2017 provides an additional fiscal impulse of 0.6 percent of GDP.
- 2018 national government budget and medium-term framework have deficit targets of 3 percent of GDP, implying broadly neutral policy stance from 2018 onwards.
- Structural fiscal reforms supported by staff:
  - Budget reform bill: annual appropriations on a cash basis, strengthen cash flow management, implement the Treasury Single Account (TSA), establish new Office of the Comptroller General.
  - Tax reform bill: general government tax-to-GDP ratio was 14.6 percent in 2016; reform expected to yield additional revenue of 2 percent of GDP in the medium term, with another 1 percent from administrative reforms (Appendix V).
  - Note: dilution in Congress could reduce revenue yield (excluding administrative reforms) from 0.9 percent of GDP to 0.5 percent in 2018, with smaller revenue losses in the medium term.
  - Raising the minimum taxable income threshold to PHP 250,000 would leave 83 percent of the workforce outside the tax net and increase risks of tax evasion; staff encouraged a lower threshold just above the minimum wage of about PHP 150,000 and indexation to minimum wage increases.
- Next-generation fiscal reforms to consider: a fiscal responsibility law (FRL) with explicit fiscal rules; illustrative FRL features:
  - National government gross debt anchor of 45 percent of GDP (currently consistent with general government net debt of 35 percent of GDP).
  - Cyclically adjusted national government primary deficit target of 2 percent of potential GDP.
  - An expenditure rule linking growth rate of total spending excluding social assistance to potential GDP growth.
- Contingency plans if tax reform delayed or weakened: moderate increase in public investment, raise VAT rate, rationalize tax incentives, accelerate new excises on automobiles and petroleum products.
- Revenue and spending reforms recommended:
  - Broaden tax base and enhance efficiency: eliminate exemptions for upper-income taxpayers, strengthen revenue administration, rationalize VAT and CIT systems by streamlining concessions and exemptions.
  - Improve composition and quality of spending: rebalance toward investment; seek IMF technical assistance on the Public Investment Management Assessment (PIMA) tool.
- Social spending and inclusion:
  - Public health and education expenditures lower than ASEAN peers: health 1.2 percent of GDP in 2015 (peer 2.2 percent), education 2.8 percent of GDP in 2015 (peer 4.1 percent).
  - Authorities plan to raise education spending to 4 percent of GDP in 2017.
- Contingent liabilities and PPPs:
  - Need for central oversight and Department of Finance’s gateway role in PPP process and large infrastructure projects.
  - Integrate PPP projects with investment strategy and budget cycle, conduct feasibility and value-for-money analysis, strengthen risk management, bring all PPP-contracting agencies into fiscal accounts, regularly publish data on outstanding PPP commitments.
  - Department of Finance should have final approval capacity for any off-budget borrowing through government controlled and owned corporations.
- Regional development and subnational reforms:
  - Synchronize devolution of revenue and expenditure assignments to subnational governments with development of institutional capacity.
  - Modernize subnational taxation: centralize and update property valuations, simplify local business tax on turnover, institute adequate borrowing rules and procedures for subnational governments.

*International Monetary Fund staff summary of Chapter 4: “The current account balance (CAB) fell.”*

### 21.      While monetary policy has been formally on hold since 2014, the effective policy rate

### cr17334 - 21.      While monetary policy has been formally on hold since 2014, the effective policy rate

### Monetary policy stance and transmission
- The effective policy rate (weighted average on all sterilization instruments) has risen by 60 basis points since mid-2016 through the reform of monetary operations.
- The BSP adopted an interest rate corridor with a term deposit auction facility to manage liquidity in June 2016, which has improved monetary policy transmission and raised the effective policy rate.
- The policy rate remains at 3 percent (real policy rate near zero).
- Unremunerated reserve requirements (RRs) for banks are 20 percent, resulting in:
  - High interest rate margins.
  - A tighter monetary policy stance than implied by the policy rate.
  - Increased financial intermediation costs and risk of migration of intermediation to less regulated NBFIs.

### Assessment of current stance and risks
- The current monetary policy stance is judged appropriate, but the BSP should be ready to tighten if overheating emerges.
- Key indicators supporting the stance:
  - Inflation is projected at the center of the target band.
  - Output gap is estimated at near zero.
  - Inflation expectations are well anchored.
  - Spare capacity in the labor market: underemployment at 17 percent and modest wage growth since 2013.
  - The effective policy rate remains close to rates implied by a Taylor rule reaction function.
- Upside risks to inflation include:
  - Commodity prices.
  - Pass through from peso depreciation.
  - Electricity tariffs.
  - Fuel excises.
  - Robust economic and credit activity.
- Triggers that could warrant monetary tightening:
  - Acceleration in credit growth with rising inflation.
  - Stronger-than-expected impact of fiscal expansion on inflation.
  - Rising external pressures.
- The BSP has space to loosen policy should downside risks materialize.

### Reserve requirements (RRs) reform: options and calibration
- The authorities’ intention to unwind high RRs on banks is appropriate but requires careful calibration and timing.
- Lowering RRs would reduce macrofinancial risks and improve financial intermediation.
- Timing and pace should be data driven and contingent on the inflation outlook and domestic liquidity conditions.
- Reform aim: keep domestic liquidity broadly unchanged. BSP options include:
  - (i) Increasing the size of the term deposit auctions to absorb liquidity released by RR reduction; this would require allowing for higher interest rates in term deposit auctions and preemptively raising the policy rate.
  - (ii) Considering unsterilized sales of foreign reserves when foreign exchange flows decline.
  - (iii) Remunerating RRs during the transition period.
- Effective communication of the impact of the reform is crucial.

### Authorities’ views on monetary and RR policy
- Authorities agreed with the assessment of the monetary policy stance and the suggested approach to unwind high RRs.
- They consider the monetary stance appropriate given the stable inflation outlook and follow a data-dependent path.
- Authorities are prepared to lower RRs over the medium term but view current conditions of strong credit growth and high domestic liquidity as not conducive for immediate reform.
- They prefer deliberate adjustment of RRs based on emerging credit and liquidity conditions to achieve inflation targets.
- Authorities agreed that unsterilized sales of foreign reserves when foreign exchange flows decline would help reduce excess domestic liquidity.

### Macrofinancial linkages and systemic financial stability risks
- Global financial cycle affects the Philippines through capital flows, impacting domestic financial conditions.
- Post-global financial crisis FX inflows led to persistent liquidity overhang and foreign reserve buildup; effective borrowing costs fell, fueling credit growth and asset price inflation.
- Nonfinancial corporate (NFC) leverage:
  - Commercial sources indicate NFC leverage is 30 percent of GDP, with a low share in foreign currency.
  - NFC debt at risk share is among the lowest in emerging market economies.
  - Some real estate developers have leveraged significantly and expanded shadow-banking activities through acceptance of advances from households.
- Credit growth has accelerated, notably to the real estate sector and households.
- Financial intermediation by NBFIs is small but growing fast and they are not regulated by the BSP.

### Financial sector soundness and data gaps
- FSIs suggest the banking sector is sound: banks remain well capitalized, with ample liquidity, and low NPLs.
- Data gaps hinder supervision; authorities have initiatives to enhance corporate sector balance sheet data and cover shadow banking activities by real estate developers.
- Staff supports giving the SEC legal access to information on conglomerates’ finances.

### Main systemic risks and concentration
- Main systemic risks: high credit growth and concentration.
- Although not yet at credit boom levels, high credit growth (real estate and households) merits continued monitoring.
- Household leverage is around 18 percent of GDP.
- Lapse of additional Single Borrower Limit for PPPs and petroleum importers has mitigated concentration risks, but opaque conglomerate structures and data gaps complicate measurement of bank exposure and intercompany linkages.
- Capital market development can help reduce bank loan concentration by diversifying funding sources for large conglomerates.
- Launch of a consumer credit bureau database is welcomed to improve borrower data transparency.

### Macroprudential policy recommendations
- Use macroprudential policies to address systemic risks:
  - BSP should stand ready to raise capital requirements in case of a broad-based credit boom, supported by monetary tightening if accompanied by overheating.
  - Deploy targeted macroprudential measures in case of excessive sectoral credit growth.
- Real estate credit policies:
  - In addition to stress tests on banks’ exposures, consider higher risk weights or provisioning requirements on real estate loans above a certain loan-to-value ratio.
- Household loans:
  - Improve data collection on borrowers’ debt-to-income (DTI).
  - Consider higher risk weights or provisioning requirements on DTI ratios.
- Staff welcomes early adoption of Basel III guidelines and the new financial stability department at the BSP.
- Staff encouraged introducing stress tests on debt-to-earnings ratios for corporates and developing a borrowers’ interconnectedness index.

### Regulatory and legislative priorities for financial stability
- Approving amendment to the BSP charter is crucial to preserve financial stability and improve monetary policy transmission. Main amendments in Congress include:
  - (i) introducing a financial stability mandate;
  - (ii) extending the supervisory perimeter;
  - (iii) establishing legal protection for supervisors;
  - (iv) increasing the BSP’s capital;
  - (v) allowing the BSP to issue its own securities.
- In the interim, enhanced coordination among financial regulators through the FSCC should continue.
- Authorities broadly agreed with the assessment of systemic risks and policies to address them and noted strengthened supervisory framework and stress-testing requirements.

### Structural policies and inclusive growth
- Authorities’ main goal: sustain rapid inclusive growth to significantly lower poverty and maximize the demographic dividend.
- Long-term objective: eradicate poverty by 2040; government aims to reduce poverty to 14 percent in 2022 (from 21.6 percent in 2015).
- Constraints to inclusive growth: low elasticity of poverty reduction to growth due to weak employment generation, structurally high underemployment, and slow technical change from low human and physical capital investment.
- Authorities’ priorities for structural reforms:
  - Higher investment in infrastructure and human capital.
  - Sound urban development.
  - Access to finance.
  - Monetary and financial policies to support price stability and financial inclusion.
  - Regulatory policy to promote competition and openness to foreign investment with adequate consumer protection.
  - Social policies to expand protection to uncovered sectors, disaster risk mitigation, and access to healthcare.
  - Eliminating quantitative restrictions in rice imports while supporting affected farmers to reduce consumer price inflation and poverty.
- Gender and labor market:
  - Female labor force participation has stagnated at 50 percent since early 2000s; target to raise female participation by 2 percent under the PDP.
  - Recommended measures: improve access to affordable child care and strengthen retraining programs.

### Capital markets, AML, and other reforms
- Capital market development priorities:
  - Finance infrastructure projects, lower borrowing costs, improve monetary policy transmission.
  - Develop secondary markets, introduce new instruments, ensure proper supervision, and revamp primary dealer system to incentivize active market-making, including introduction of the repo system.
- AML/CFT:
  - AML legislation amended to cover casinos, which must report single casino cash transactions above PHP 5 million (approximately US$99,000).
  - Further strengthening suggested by amending the bank secrecy law and making tax evasion a predicate crime.
- Authorities’ reform commitments:
  - Extend basic education from 10-year to 12-year system.
  - Expand public health insurance coverage.
  - Enhance financial inclusion through digitalization.
  - Review Foreign Investment Negative List (FINL) to attract FDI.
  - Implement capital market reform package and provide childcare support to raise female labor participation.
  - Current tax reform proposal includes easing bank secrecy law for tax purposes.

### Staff appraisal and fiscal recommendations
- Recent performance: strong economic growth and low inflation; growth projected to remain high supported by robust domestic demand; inflation expected near the center of the target band.
- Risks to outlook skewed to downside, mainly external; combination of high credit growth, buoyant private investment, and fiscal expansion without tax reform could lead to overheating.
- Approval of first tax reform package would support sustainable increase in infrastructure investment.
- External sector: CAB remains above its estimated norm; undervaluation of the REER estimated between zero and 4 percent.
- Foreign reserves remain sizable, broadly justified by exposure to natural disaster and capital flow volatility.
- Staff supports gradual scale-up of productive infrastructure and targeted social spending while keeping a broadly neutral fiscal stance.
- Fiscal recommendations:
  - Calibrate fiscal policy to balance overheating risk; increase priority spending financed through additional revenue mobilization, including widening the tax base, to keep fiscal stance broadly neutral.
  - Avoid procyclicality: tighten fiscal stance if economic growth is stronger than expected.
  - Support the 3 percent of GDP national government deficit ceiling to reinforce credibility and keep general government net debt on a stable path.

*Source: IMF staff report content (cr17334).*

### 42.      Staff welcomes the first tax reform package designed to create additional fiscal space,

### cr17334 - 42.      Staff welcomes the first tax reform package designed to create additional fiscal space,

### Tax reform and fiscal space
- Staff welcomes the first tax reform package designed to create additional fiscal space and encourages the authorities to consider additional revenue measures.
- The development agenda depends on a series of comprehensive tax reforms that could create additional fiscal space.
- Staff appreciates the breadth of the envisaged tax reforms, but cautions that reform efforts may have a lower revenue yield than originally projected because of dilution in Congress.
- Staff encourages the authorities to consider:
  - lowering the threshold for PIT;
  - raising the VAT rate;
  - rationalizing tax concessions and exemptions;
  - accelerating the implementation of new excises on automobiles and petroleum products.

### Monetary policy stance
- The stance of monetary policy remains appropriate, but the BSP should be ready to tighten if there are signs of overheating.
- The authorities’ intention to unwind the high banks’ RRs over time would reduce macrofinancial risks.
- This reform should be carefully calibrated and timed, and should aim to keep domestic liquidity broadly unchanged.
- The exchange rate should continue to move freely in line with market forces, with foreign exchange intervention limited to smoothing excessive volatility in both directions.

### Financial stability risks
- The main systemic risks to financial stability are high credit growth and concentration.
- High credit growth, especially to the real estate and household sectors, merit continued monitoring.
- Some conglomerates and real estate developers have leveraged significantly, while shadow-banking activities have expanded.
- The opaque conglomerate structure and data gaps generate challenges to measure concentration.
- Capital market development could help reduce bank loan concentration by diversifying the sources of funding for large conglomerates.
- Staff supports the authorities’ efforts to have legal access to information on conglomerates’ finances.

### Macroprudential policies and Basel III
- Macroprudential policies should be used to address systemic risks to financial stability.
- In case of a broad-based credit boom, the BSP should raise capital requirements, supported by monetary policy tightening if accompanied by overheating.
- Targeted macroprudential policies should be used if sectoral credit growth is excessive.
- Staff welcomes the early adoption of the Basel III guidelines on banks.
- The new financial stability department at the BSP has a role in mainstreaming macrofinancial surveillance and strengthening the macroprudential framework.

### BSP Charter amendments
- The financial stability framework would greatly benefit from amendments of the BSP Charter.
- Staff supports the proposed revisions that:
  (i) introduce a financial stability mandate;
  (ii) extend the supervisory perimeter;
  (iii) establish legal protection for supervisors;
  (iv) increase the BSP’s capital;
  (v) allow the BSP to issue its own securities.

### Social, structural, and regulatory reforms
- Staff supports ongoing reforms aimed at lowering poverty and maximizing the demographic dividend.
- Authorities are appropriately focusing on investing in infrastructure and human capital, reducing regional disparities, eliminating quantitative restrictions in rice imports, and improving access to finance including through capital market development.
- Regulatory reforms to reduce the costs of doing business and openness to foreign investment would help promoting domestic competition.

### AML/CFT framework
- Staff welcomes the recent amendment to the AML law to include casinos.
- The AML/CFT framework could be strengthened further by:
  - amending the bank secrecy law; and
  - making tax evasion a predicate crime.

*Source: cr17334 - 42.*

### 49.      It is recommended that the next Article IV consultations take place on the standard

### 49. It is recommended that the next Article IV consultations take place on the standard 12-month cycle.

### Real Sector: Growth, Inflation, Wages, Credit
- Growth remains strong, led by robust domestic demand.
- Robust growth of services and manufacturing output.
- CPI (annual average) and CPI (end year):
  - 2012: 3.2 / 3.0
  - 2013: 3.0 / 4.1
  - 2014: 4.1 / 2.7
  - 2015: 1.4 / 1.5
  - 2016: 1.8 / 2.6
  - 2017 (Proj.): 3.1 / 2.9
  - 2018 (Proj.): 3.0 / 3.0
- Wage growth has been moderate.
- Credit growth has rekindled in recent months, including for manufacturing, consumers, and non-residents.

### Monetary and Financial Conditions
- Monetary policy has been on hold since 2014.
- New IRC with liquidity operations, adopted in June 2016, has brought the T-bill rates closer to the policy rate.
- Growth rates of reserve money and net foreign assets have remained moderate.
- Yield curve broadly stable since 2016, slightly steeper than in 2014-15.
- Liquidity in the system stabilized; about two-thirds absorbed through banks’ reserve requirements.
- Higher inflation reduced real policy rates in 2016-17, while the peso has depreciated in real effective terms.
- Stock market valuations recovered after the selloff following the U.S. elections.

### Cross-Country Financial Market Comparisons
- Foreign reserves broadly stable since end-2015, while the nominal exchange rate has depreciated.
- With the new IRC, T-Bill Yields moved closer to the policy rate, but remain comparable to other Asian economies.
- Government bond yields have risen with the adoption of the new IRC in June 2016 but remain comparable to some regional peers.
- Negative returns to carry trade remain small in the Philippines compared to peers.

### External Sector: Balance of Payments, Reserves, REER
- Balance of payments broadly in balance in 2016; current account balance declined sharply to near zero.
- Portfolio capital outflows slowed; FDI inflows increased significantly.
- International reserves stabilized after rapid accumulation between 2007 and 2012 and remain well above the IMF’s reserve adequacy metric.
- BSP has relied more on exchange rate fluctuations than changes in FX reserves since 2014; REER has depreciated since early 2015.
- Balance of Payments (US$ billions):
  - Current account balance: 2012: 6.9; 2013: 11.4; 2014: 10.8; 2015: 7.3; 2016: -1.0; 2017 (Proj.): -0.3; 2018 (Proj.): -1.1
  - Trade balance of goods and services: 2016: -28.5; 2017 (Proj.): -30.1; 2018 (Proj.): -32.7
  - Gross reserves (US$ billions): 2012: 83.8; 2013: 83.2; 2014: 79.5; 2015: 80.7; 2016: 81.0; 2017 (Proj.): 80.9; 2018 (Proj.): 80.6
  - Remittances (in percent of GDP): 2012: 9.3; 2013: 9.3; 2014: 9.6; 2015: 9.7; 2016: 9.7; 2017 (Proj.): 10.1; 2018 (Proj.): 9.6

### Banking Sector and Financial Soundness
- Loan to deposit rate spreads have remained high, partly due to high unremunerated banks’ reserve requirements; interest spreads high relative to funding costs.
- Bank loans significantly lower than bank deposits; universal banks largest share of banking system assets.
- Philippine banking system is well capitalized with low and declining NPL ratios.
- Financial Soundness Indicators (selected, in percent):
  - Regulatory capital to risk-weighted assets: 2012: 17.8; 2013: 17.0; 2014: 16.1; 2015: 15.3; 2016: 15.6
  - Non-performing loans to total gross loans: 2012: 2.2; 2013: 2.4; 2014: 2.0; 2015: 1.9; 2016: 1.7
  - Return on assets: 2012: 1.8; 2013: 1.9; 2014: 1.6; 2015: 1.4; 2016: 1.3
  - Liquid assets to total assets: 2012: 36.6; 2013: 42.8; 2014: 42.4; 2015: 38.8; 2016: 35.6

### Social Conditions and Income Distribution
- Poverty recently fell but remains high; income inequality remains high.
- Unemployment rate (2016): 5.5 percent, fallen but high relative to ASEAN peers.
- Per capita GDP (2016): $2,927; per capita GNI somewhat higher reflecting sizable remittances.

### Key Macro Indicators and Medium-Term Outlook (selected)
- Nominal GDP (2016): P 14,481 billion ($305 billion)
- Population (2016): 103.2 million
- GDP per capita (2016): $2,927
- Poverty headcount ratio at $1.90 a day at PPP (2012): 13 percent
- IMF quota: SDR 2,042.9 million
- Main products and exports: electronics, agriculture products, and business process outsourcing
- Real GDP (percent change):
  - 2012–2016 observed series: 6.7, 7.1, 6.1, 6.1, 6.9
  - 2017 (Proj.): 6.6; 2018 (Proj.): 6.7
- Real GDP per capita (percent change):
  - 2012–2016: 4.1, 5.2, 4.3, 4.3, 5.2
  - 2017 (Proj.): 4.5; 2018 (Proj.): 4.6
- Investment and saving (percent of GDP):
  - Gross investment: 2016: 24.3; 2017 (Proj.): 25.6; 2018 (Proj.): 25.6
  - National saving: 2016: 24.0; 2017 (Proj.): 25.5; 2018 (Proj.): 25.5
- External indicators:
  - Total external debt (percent of GDP): 2012: 32.0; 2013: 28.9; 2014: 27.3; 2015: 26.5; 2016: 24.5; 2017 (Proj.): 23.0; 2018 (Proj.): 20.5
  - Reserves/short-term liabilities (percent): 2016: 408.3; 2017 (Average Jan–Aug, 2017): 399.1; 2017 latest obs: 396.2 (Table footnotes)

### Public Finance: Revenues, Expenditure, Debt, and Fiscal Projections
- Table 1 highlights (levels and percent of GDP):
  - Revenue and grants (percent of GDP): 2016: 15.2; 2017 (Proj.): 15.2; 2018 (Proj.): 15.2
  - Expenditure (percent of GDP): 2016: 19.7; 2017 (Proj.): 20.3; 2018 (Proj.): 20.4
  - National government balance (authorities' definition, percent of GDP): 2016: -2.4; 2017 (Proj.): -3.0; 2018 (Proj.): -3.0
  - Nonfinancial public sector net debt (percent of GDP): 2016: 44.7; 2017 (Proj.): 42.9; 2018 (Proj.): 41.2
- Selected nominal fiscal figures (billions of pesos, national government cash accounts):
  - Revenue and grants: 2012: 1,535; 2013: 1,716; 2014: 1,909; 2015: 2,109; 2016: 2,196; 2017 (Proj.): 2,419; 2018 (Proj.): 2,658
  - Expenditure and net lending: 2012: 1,778; 2013: 1,880; 2014: 1,982; 2015: 2,231; 2016: 2,549; 2017 (Proj.): 2,897; 2018 (Proj.): 3,182
  - Capital expenditure: 2016: 594; 2017 (Proj.): 754; 2018 (Proj.): 822
  - Balance (national government cash): 2016: -354; 2017 (Proj.): -478; 2018 (Proj.): -524

### Medium-Term Baseline and Alternative Scenarios (2016–22)
- Baseline Scenario (selected):
  - Real GDP growth: 2016: 6.9; 2017: 6.6; 2018: 6.7; 2019–2022: 6.8 each year
  - Inflation (annual average): 2016: 1.8; 2017: 3.1; 2018–2022: 3.0 each year
  - Current account balance (percent of GDP): 2016: 0.2; 2017: -0.1; 2018: -0.3; 2019: -0.5; 2020: -0.7; 2021: -0.9; 2022: -1.0
  - National government net debt (percent of GDP): 2016: 37.7; 2017: 37.0; 2018: 36.3; 2022: 34.0
- Reform-and-Spend Scenario (assumptions noted in source):
  - Assumes tax and administrative reforms raising revenue by 2 percent of GDP by 2022, infrastructure investment rise of 1.6 percent of GDP, social spending increase of 0.4 percent of GDP, and structural reforms to ease FDI and enhance competition.
  - Outcomes include higher real GDP growth, temporary inflation increase, wider current account deficit due to investment-related imports.
  - Real GDP growth (selected): 2016: 6.9; 2017: 6.6; 2018: 6.7; 2019: 6.9; 2020: 7.0; 2021: 7.0; 2022: 7.0
- No Reform-and-Spend Scenario (assumptions noted in source):
  - Assumes no revenue gains from tax reform, infrastructure investment increases financed by public debt, no structural reforms.
  - Outcomes include deteriorated fiscal position, higher borrowing costs, less growth than Reform-and-Spend, larger output gap and inflation increases, wider current account deficit.

### Policy Recommendations and Actions Taken (2016 Article IV recommendations and follow-up)
- Fiscal policy:
  - Recommendation: Maintain general government net debt-to-GDP broadly stable at around 35 percent while raising national government deficit target to 3 percent of GDP to increase priority expenditures.
  - Action: National government deficit target raised to 3 percent of GDP in 2017; general government net debt-to-GDP projected to decline to 33.7 percent in 2017.
  - Recommendation: Scale up public investment in infrastructure and human capital.
  - Action: National government increased capital outlays from 3.3 percent of GDP in 2015 to 4.2 percent in 2016 and to a projected 4.8 percent in 2017.
  - Recommendation: Reform the tax system and administration to raise additional revenue.
  - Action: Government submitted a comprehensive tax reform bill to Congress; passed the House and under discussion at the Senate.
- Monetary policy:
  - Recommendation: Stand ready to tighten policy in response to faster-than-expected credit growth with inflationary pressures or stronger-than-expected fiscal impact on inflation.
  - Action: In June 2016, BSP introduced a new interest rate corridor with a term deposit auction facility; resulted in a de facto monetary tightening of about 60 basis points.
- Macroprudential policy:
  - Recommendation: Monitor emerging systemic risks (especially in real estate) and stand ready to respond with targeted macroprudential measures.
  - Action: BSP set up a new financial stability department (December 2016) to enhance risk monitoring and strengthened in-house supervisory training.
  - Recommendation: Allow the additional Single Borrower Limit (SBL) for PPP to lapse in December 2016.
  - Action: Implemented as recommended.
  - Recommendation: Assign an explicit financial stability mandate to the BSP through amendments to its charter.
  - Action: Amendment to the BSP charter submitted to Congress to expand regulatory perimeter to less regulated non-bank sector.
- Structural policy:
  - Recommendation: Lift or ease legal and administrative restrictions on inward FDI.
  - Action: Philippines Development Plan 2017-22 aims to relax regulatory restrictions on FDI, including amendments to the Constitution.
  - Recommendation: Develop capital market instruments to support infrastructure financing.
  - Action: Authorities drawing up a comprehensive capital market development strategy, including enhancing primary market issuance policy and introducing an interdealer repo market.

*International Monetary Fund staff report (Philippines) — content unit 49.*

### Appendix I. Bank Credit Developments

### Appendix I. Bank Credit Developments

### Credit growth: pace and drivers
- Bank credit growth increased from 13.6 percent in 2015 to 19.7 percent in July 2017.
- Initial pickup drivers: credit to the service sector and consumer loans.
- More recent drivers: credit to the manufacturing and nonresident sectors.
- Consumer loans:
  - Growing at over 20 percent since mid-2016, albeit from a low base.
- Real estate loans:
  - Largest banks’ exposure.
  - Continued to grow at around 19 percent.
- Implication: High growth of credit to some sectors warrants continued monitoring.

### Credit gap assessments and early‑warning indicators
- Multiple methodologies were applied; results are mixed:
  - Mendoza and Terrones (2008) approach (deviations of real credit per capita from trend):
    - Finds credit aggregates are close to trend.
  - Dell'Ariccia and others (2012) approach (deviations of credit-to-GDP ratio from a cubic trend):
    - Finds no evidence of credit booms; the growth differential between credit and GDP remains below the 10 percent cutoff.
  - IMF Global Financial Stability Report (September 2011) approach (rise in credit-to-GDP ratio vs. 3 percent cutoff for early warning):
    - Shows the rise in the credit-to-GDP ratio was close to the 3 percent cutoff in 2016 and could slightly surpass this threshold in 2017−18.
  - Drehmann and others (2010) approach (deviations of the credit-to-GDP ratio from a Hodrick-Prescott trend with a high smoothing parameter):
    - Finds the credit-to-GDP ratio could exceed the 10 percent of GDP cutoff in 2018.
- Overall: Credit gaps are below credit boom levels in most but not all indicators; some indicators suggest credit gaps could approach early warning levels in 2017−18.

### Monitoring priorities and vulnerabilities
- Sectors to monitor closely:
  - Consumer lending (rapid growth over 20 percent since mid-2016).
  - Real estate sector (largest bank exposure; growth around 19 percent).
  - Manufacturing and nonresident sectors (recent contributors to credit uptick).
- Rationale:
  - Rapid credit growth, especially concentrated in specific sectors, increases vulnerability to asset price corrections and financial sector stress if conditions reverse.
  - Some credit gap measures nearing early-warning cutoffs imply elevated risk of future overheating.

*Source: cr17334 - Appendix I. Bank Credit Developments*

### 42.7 percent of GDP in 2016 to 34.3 percent in 2022, with net debt declining from 34.6 percent to

### cr17334 - 42.7 percent of GDP in 2016 to 34.3 percent in 2022, with net debt declining from

### Public debt dynamics and projections
- General government gross debt projected to fall from 42.7 percent of GDP in 2016 to 34.3 percent in 2022.
- Net debt projected to decline from 34.6 percent to 30.9 percent (period implied across projections).
- Gross financing needs remain comfortable at around 3.5 percent of GDP throughout the projection period.
- Main contributors to projected debt reduction:
  - Interest rate−growth differential is the main factor (real GDP growth is high).
  - Primary budget balance makes a significant contribution to the reduction in general government gross debt.
- Debt composition projected to be stable with a relatively low share of short-term debt and foreign currency−denominated debt, in line with authorities’ debt management policy.
- Alternative scenarios:
  - Historical scenario (real GDP growth, real interest rates, and primary balances equal their 2007‒2016 averages) leads to faster reduction in debt and gross financing needs than staff’s baseline.
  - Scenario with a constant primary budget surplus at the projected 2017 level of 1.2 percent of GDP also leads to lower debt-to-GDP ratios and gross financing needs than staff’s baseline.
- Staff notes its baseline is conservative by historical standards.

### External debt sustainability
- Total external debt declined from a peak of 76.4 percent of GDP in 2001 to 24.5 percent in 2016.
- Under staff’s baseline, external debt is projected to fall to 13.7 percent of GDP in 2022.
- Historical scenario (key variables equal 2007‒2016 averages) leads to faster reduction in external debt than staff’s baseline.
- Resilience to shocks:
  - One-half standard deviation shocks to interest rates, growth, and the current account lead to only modest increases in external debt ratios over the medium term.
  - A one-time exchange rate depreciation of 30 percent in 2017 would raise the external debt-to-GDP ratio by about 9.3 percentage points; even then external debt would fall below current levels by 2022.
- Selected metrics (2012–2022 series from the DSA tables in the source):
  - Baseline external debt (percent of GDP) entries include: 2012: 32.0; 2013: 28.9; 2014: 27.3; 2015: 26.5; 2016: 24.5; 2017: 23.0; 2018: 20.5; 2019: 18.3; 2020: 16.5; 2021: 15.0; 2022: 13.7.
  - Change in external debt (percent of GDP) entries include: -1.7, -3.1, -1.6, -0.8, -1.9, -1.5, -2.5, -2.2, -1.8, -1.5, -1.2 (2012–2022).
  - Gross external financing need (in billions of US dollars): 8.7, 9.7, 9.7, 12.0, 19.1, 20.6, 21.4, 22.4, 23.7, 25.1, 26.7 (2012–2022).
  - Gross external financing need (in percent of GDP): 3.5, 3.6, 3.4, 4.1, 6.3, 6.4, 6.0, 5.6, 5.4, 5.1, 4.9 (2012–2022).
  - External debt-to-exports ratio (in percent): 119.6, 115.7, 103.1, 107.2, 99.9, 89.8, 82.6, 76.1, 70.7, 66.1, 62.2 (2012–2022).
- Key macroeconomic assumptions under baseline (selected series as presented):
  - Nominal GDP (US dollars): 250.1, 271.8, 284.6, 292.8, 304.9, 321.2, 357.9, 397.8, 442.2, 491.6, 543.7 (2012–2022).
  - Real GDP growth (in percent): 6.7, 7.1, 6.1, 6.1, 6.9, 5.6, 2.0, 6.6, 6.7, 6.8, 6.8 (2012–2022).
  - Current account balance, excluding interest payments (percent of GDP): 4.0, 5.3, 4.8, 3.4, 1.0, 4.3, 2.0, 0.7, 0.4, 0.1, -0.2 (2012–2022).
  - Net non-debt creating capital inflows (percent of GDP): 0.3, 0.0, 0.1, -0.2, 1.4, 0.5, 0.6, 1.5, 1.4, 1.3, 1.2 (2012–2022).

### Appendix V — Update on Tax Reform Proposals
- Rationale: Revenue mobilization is a significant bottleneck to raise government spending for infrastructure and human capital without undermining macro-financial stability and debt sustainability; causes include narrow tax bases and administrative shortcomings.
- First package concentrates on personal income tax, excises, and value-added tax.
- Personal income tax (PIT):
  - Proposal raises the minimum taxable income from PHP 10,000 to PHP 250,000.
  - Reduces number of tax brackets from seven to six with a progressive schedule (bracket details not reproduced in the supplied excerpt).
- Excises:
  - Excise tax on diesel, kerosene, liquefied petroleum gas, and bunker oil: PHP 3 per liter in 2018; PHP 5 per liter in 2019; PHP 6 per liter in 2020.
  - Additional tax on other petroleum products (including gasoline, lubricating oils, and greases): PHP 8 per liter in 2018; PHP 9 per liter in 2019; PHP 10 per liter in 2020.
  - Additional excise on automobiles progressive with rates linked to net selling price on top of a fixed amount.
  - New tax on sugar-sweetened beverages of PHP 10 per liter (earmarked for the Health Promotion Fund).
  - DoF estimates top 10 percent of households consume more than half of fuel products.
- Value-added tax (VAT):
  - Proposal removes certain VAT exemptions granted to cooperatives (except those selling unprocessed agricultural products), power transmission, domestic shipping, residential leases and low-cost and socialized housing, boy and girl scouts, and special laws except those covering senior citizens and people with disability.
- Other taxes:
  - Microbusinesses: flat rate of 8 percent (in lieu of income and VAT or other types of taxes) for businesses with gross sales less than PHP 3 million.
  - Donor’s tax: single rate of 6 percent on net donations for gifts exceeding PHP 100,000 on an annual basis.
  - Estate tax: single rate of 6 percent (instead of a tax schedule ranging from 5 to 20 percent based on the value of assets above PHP 200,000).
  - Grants an amnesty in respect of estate tax for taxable year 2016 and prior years, which have remained unpaid as of end-2016.

### Appendix VI — Financial inclusion
- Geography and access:
  - Archipelago of 7,107 islands.
  - 36.2 percent of municipalities left without a physical banking office (Financial Inclusion Initiatives Report 2016).
- Account and credit penetration:
  - As of 2014, about 28.1 percent of adults have an account at a financial institution.
  - Less than 5 percent have outstanding mortgage (World Bank, Global Findex Database).
  - Only 30.8 percent of SMEs have bank loans or formal lines of credit.
- Opportunities and risks:
  - Digital financial services could overcome geographical barriers, promote competition, and facilitate data collection.
  - Philippines leads regional peers in the use of mobile networks for financial transactions.
  - Public investment in education and infrastructure, including ICT, needed to fully reap benefits.
  - Adequate financial supervision and consumer protection are essential; innovation should be paced with supervisory capacity.
  - Recommendations include enhancing financial literacy programs, strengthening administrative capacity for oversight and supervision, and institutionalizing financial education in the school system (as proposed in the 2014 Consumer Finance Survey).
- Policy initiatives:
  - Launch of the National Strategy for Financial Inclusion in 2015 and formation of the inter-agency Financial Inclusion Steering Committee.
  - National Retail Payments System project led by the BSP to move retail inter-bank transactions toward electronic transfers.
  - Introduction of regulatory framework for virtual currency exchanges noted as timely given rapid increase in transaction volume for remittances.

### Fund relations, technical assistance, and statistical work (selected items)
- Date on document header: October 10, 2017.
- Membership status: Joined December 27, 1945; Article VIII.
- General Resources Account (SDR Millions):
  - Quota: 2,042.90 (100.00 percent of quota).
  - IMF holdings of currency (holdings rate): 1,773.45 (86.81 percent of quota).
  - Reserve tranche position: 269.53 (13.19 percent of quota).
- SDR Department:
  - Net cumulative allocation: 837.96 (100.00 percent of allocation).
  - Holdings: 847.40 (101.13 percent of allocation).
- Latest financial arrangements (listed in the source):
  - Stand-by approved 04/01/98–12/31/00: Amount Approved 1,020.79 SDR millions; Amount Drawn 783.23 SDR millions.
  - EFF approved 06/24/94–03/31/98: Amount Approved 791.20 SDR millions; Amount Drawn 791.20 SDR millions.
  - Stand-by approved 02/20/91–03/31/93: Amount Approved 334.20 SDR millions; Amount Drawn 334.20 SDR millions.
- Exchange arrangement: De jure classified as free floating; de facto classified as floating. BSP intervenes to smooth undue short-term volatility.
- Technical assistance (selected highlights):
  - FAD TA on tax administration (2011–16) supported VAT audit, arrears management, and compliance improvement; TADAT assessment in December 2015.
  - PFM TA and reforms: Treasury Single Account introduced; midyear macro-fiscal reporting; PFM bill submitted to Congress; TSA and cash management reviewed with TA in August 2017.
  - MCM TA on risk-based supervision, Basel Core Principles, liquidity management, interest rate corridor (introduced June 2016), and financial stability framework.
  - STA TA on Government Finance Statistics, Balance of Payments Statistics, Data Dissemination Standards, National Accounts, producer and consumer price indices; support for implementation of 2008 SNA and enhancement of PSA capacity (TA in August 2017).
  - Other MCM TA on deepening government securities market, exchange consolidation, securities regulation, and sequencing of fixed income and derivative market reforms.

*Source: IMF staff report (Informational Annex), Philippines — Staff Report for the 2017 Article IV Consultation; October 10, 2017.*

### introduction of the standardized report form (SRF) for other financial corporations (OFCs). The

### introduction of the standardized report form (SRF) for other financial corporations (OFCs)

### SRF introduction for OFCs
- The authorities have submitted test SRF-data for several types of OFCs, which have been reviewed by STA.
- It is expected that the SRF will be introduced by end-2016.

### Resident Representative
- A Resident Representative has been stationed in Manila since January 1984.
- Mr. Yongzheng Yang took over from Mr. Shanaka Jayanath Peiris as the Resident Representative for the Philippines in September 2017.

### IMF–World Bank collaboration: shared assessment and macro-critical reform areas
- Background and shared assessment:
  - The Bank and the Fund country teams for the Philippines exchanged views to coordinate the teams’ work during 2017‒18 through the resident representative’s office.
  - Teams agreed on the Philippines’ main macroeconomic challenges: build foundations for faster and more inclusive growth, navigate the uncertain global environment, maintain macroeconomic stability, and create policy space to meet future potential shocks.
- Three structural reform areas identified as macro-critical:
  1. raising investment, including public sector capital spending;
  2. strengthening public financial management and the efficiency of spending, including for social safety nets;
  3. financial sector development, including financial inclusion.

### Key areas with joint programs — high-level activities and focus
- Strengthening Public Finance:
  - Continued focus on mobilizing fiscal revenue to fund spending supporting sustained and inclusive growth while strengthening resilience to shocks.
  - Close coordination in tax policy reform including fiscal incentives rationalization and monitoring of the sin tax implementation.
  - Management of fiscal risks and reporting; debt management strategy.
  - Assist the Department of Budget and Management in improving public financial management.
  - Support for the Bureau of Treasury’s lead role in implementation of a Single Treasury Account (TSA) and cash management.
- Financial Sector:
  - Joint Bank/Fund Financial System Stability Assessment in 2009 following the initial joint FSAP in 2002.
  - Fund focus: technical assistance in bank supervision and resolution.
  - Bank focus: nonbank financial sector, crisis simulations, and financial inclusion.
  - Joint interests: banking sector soundness and resolution, financial inclusion, and capital market development.
- Information and coordination requests between teams:
  - Fund team requests updates on World Bank discussions with the government on financing of infrastructure, PPPs, and implementation of development policy lending; sharing of analytical work; follow up from the 2010 FSAP; work on reform of social safety nets, public expenditure reviews, and public financial management.
  - Bank team requests to be kept informed of the Fund’s assessments of macroeconomic policies and prospects and to coordinate technical assistance work, especially on budget reform, tax policy and administration, financial sector development and soundness, and public expenditure analysis and management.

### Bank, Fund, and Joint Work Programs (selected items and timing)
- Bank Work Program (selected products and status):
  - Mindanao Jobs Report — Completed in June 2017
  - Philippine Economic Update — Semi-annually
  - Programmatic policy analysis and implementation support for inclusive growth — Completed in August 2017
  - Programmatic support on improving statistics, including support to the new Philippine Statistics Authority and the Securities and Exchange Commission — Ongoing
  - Game changers for inclusive growth: support to the tax reform, customs reform, competition reform and MSME development — Ongoing
  - Report on the Observance of Standards and Codes, Accounting and Auditing (A&A ROSC) — Completed in August 2017
  - Programmatic Public Sector Governance Program, including program spending assessments, open government and program performance tracking and Open Roads and an Open Roads platform — Ongoing
  - Supporting the development of a National Competition Policy — Ongoing
  - PFM TA based on the PEFA assessment — Ongoing
  - Programmatic Support to Financial development and Inclusion — Ongoing
  - Public Expenditure Review — Ongoing
  - Analysis on Productivity and Growth — Ongoing
  - E-government project preparation — Ongoing
  - Customs reform and trade modernization project preparations — Ongoing
  - Analytical work on MSME development — Ongoing
  - Analytical work on Capacity Needs and Capacity Building in the Public Sector — Ongoing
- Fund Work Program (selected products and timing/status):
  - Article IV consultation with a focus on the medium-term challenges of supporting a well-managed rise in investment and a more inclusive growth — July/August 2017
  - Article IV staff report — September 2017
  - Public financial management (cash management, transparency and budget execution) TA — Ongoing
  - Tax policy TA — Ongoing
  - Banking supervision and bank resolution TA — Ongoing
  - Liquidity management and forecasting TA — Ongoing
  - Financial stability framework TA — Ongoing
  - Securities supervision and regulation TA — Ongoing
  - Statistical data compilation and dissemination TA — Ongoing
- Joint Work Program (selected items and status):
  - Management of Fiscal Risk and GOCC/PPPs — Ongoing
  - DoF-BTr Debt Management Strategy — Ongoing
  - Implementation of PFM reforms related to Fiscal Transparency; Evaluation of Fund and PEFA assessment update led by Bank — Ongoing
  - Review of tax policy notes by the Bank and update of recommendations by the Fund focused on financial sector taxes and related to ASEAN Economic Community 2016 — Ongoing
  - Macro-fiscal simulations of scaling up public investment and public investment management (PIM) institution reforms — Ongoing

### Collaboration matrix: macro-critical structural issues (high-level mapping)
- Raising potential growth / Investment:
  - Corporate sector performance and vulnerabilities (IMF/WB)
  - Investment environment (WB)
  - Regulatory framework (WB)
  - Corruption / rule of law (WB)
  - Investment incentives (IMF)
  - Energy Sector (WB)
  - Power supply and expected shortage (WB)
  - Energy sector taxation (IMF)
  - Rice market (WB)
  - NFA operation and efficiency (WB)
  - Pricing and subsidy of rice (WB/IMF)
  - Labor market (WB)
  - Regulatory framework (WB)
  - Wages/union structure (WB)
  - Structural reforms in key sectors (e.g., ports and shipping, water, tourism, agriculture, and IT-enabled services) (WB)
  - Corporate governance
- Public finance (selected items):
  - BIR reform (IMF/WB)
  - Cash management (IMF)
  - Expenditure efficiency (capital spending) (WB)
  - Revenue administration (IMF/WB)
  - BOC (IMF/WB)
  - Revenue forecasting (WB/IMF)
  - Public financial management (WB)
  - IFMIS/fiscal reporting (IMF/WB)
  - Budget preparation (IMF/WB)
  - Budget execution (IMF/WB)
  - Tax Policy (IMF/WB)
  - Expenditure efficiency/policy (WB)
  - Social safety net (WB)
  - Level of spending (IMF/WB)
  - Medium-term Expenditure Framework (WB/IMF)
  - GOCC reform (WB)
  - PIM reforms and PPPs (WB/IMF)
  - Debt Management (WB/IMF)
- Financial sector (selected items):
  - Bank supervision and Financial Stability Framework (IMF)
  - Banking sector soundness and resolution (IMF/WB)
  - PDIC (WB)
  - Contingency Framework (IMF/WB)
  - Capital market development (IMF/WB)
  - International coordination to limit regulatory arbitrage (IMF)
  - Financial Inclusion (IMF/WB)
  - Islamic Finance (WB)
  - AML (WB)
  - Remittances (WB)

### Relations with the Asian Development Bank (ADB) — key facts and figures (as of June 30, 2017)
- Since joining ADB in 1966, the Philippines has received 239 sovereign loans and grants financed by ADB Special Funds for a total of $16,461.42 million including nonsovereign financing amounting to $1,108.94 million.
- As of 30 June 2017, cumulative direct value‑added cofinancing for the Philippines amounted to $1.4 billion and $100.95 million for TA projects.
- Table 1 — Cumulative Sovereign and Nonsovereign ADB Lending to Philippines (As of June 30, 2017) — selected sector totals and percentages:
  - Energy: No. of Loans 33; Amount of Loans 2,136.7; Percent (by amount) 12.2
  - Public sector management: No. of Loans 15; Amount of Loans 3,352.0; Percent (by amount) 19.1
  - Agriculture and natural resources: No. of Loans 60; Amount of Loans 3,128.1; Percent (by amount) 17.8
  - Transport and ICT: No. of Loans 31; Amount of Loans 1,584.7; Percent (by amount) 9.0
  - Finance: No. of Loans 35; Amount of Loans 1,993.9; Percent (by amount) 11.4
  - Multisector: No. of Loans 8; Amount of Loans 916.6; Percent (by amount) 5.2
  - Water and other municipal infrastructure and services: No. of Loans 29; Amount of Loans 1,685.6; Percent (by amount) 9.6
  - Health and social protection: No. of Loans 7; Amount of Loans 648.7; Percent (by amount) 3.7
  - Education: No. of Loans 11; Amount of Loans 1,320.5; Percent (by amount) 7.5
  - Industry and trade: No. of Loans 12; Amount of Loans 793.2; Percent (by amount) 4.5
  - Total: No. of Loans 241; Amount of Loans 17,559.9; Percent (by amount) 100.0
- ADB private sector operations in the Philippines:
  - Began in 1986.
  - As of June 30, 2017, cumulative approvals in 30 projects amounted to $1.1 billion.
  - Examples of ADB support and approvals: January 2015 loan for $20 million to support the 150-Megawatt Burgos Wind Farm Project; June 2015 direct loan without counterindemnity for up to P 1.8 billion and a partial credit guarantee for up to P 8.02 billion to support issuance of the Philippines’ first Philippine peso-denominated green bond project; December 2014 $75 million (P 3.375 billion) loan for expansion and renovation of the Mactan Cebu Airport terminal.

### Statistical issues (as of August 4, 2017)
- I. Assessment of Data Adequacy for Surveillance — summary findings:
  - General: Data provision to the Fund has some shortcomings, but is broadly adequate for surveillance.
  - National accounts:
    - NSCB rebased the national accounts from 1985 to 2000 as part of a World Bank-funded project, Improving the Quality and Usefulness of the Philippine System of National Accounts.
    - Continuing improvements include ongoing efforts to fully implement the System of National Accounts, 2008.
    - Weaknesses remain: coverage of the GDP and statistical discrepancies between expenditure and production sides.
    - Authorities are working to improve: (i) the accuracy of the GDP volume measures; (ii) the coverage of the public corporations sector; (iii) the accuracy of the quarterly GDP data; and (iv) the adoption of benchmark techniques to reconcile quarterly and annual national accounts estimates.
    - NSCB participating in the IMF Statistics Department’s Project on the Implementation of the System of National Accounts and the International Comparison Program, funded by the Government of Japan — a three-year technical assistance project to improve national accounts and price statistics.
    - National accounts expected to be revised in the near future based on the recently released 2012 Census of Philippine Business and Industry (CPBI).
  - Price statistics:
    - In July 2011, the National Statistics Office introduced a rebased consumer price index (CPI) compiled using weights based on the 2006 Family Income and Expenditure Survey.
    - Updated CPI uses the Classification of Individual Consumption by Purpose (COICOP).
    - Assistance will be provided to improve quality of price statistics in Philippines.
  - External sector statistics:
    - BSP completed the BOP compilation based on the BPM6 framework in March 2014, and that of the IIP in September 2014.
    - New data sources introduced: Cross-Border Transactions Survey and administrative-based reporting systems.
    - Coverage challenges remain due to nontraditional channels and FCDUs being exempt from reporting because of strict banking secrecy rules; FCDUs account for about 70−75 percent of foreign exchange settlements.
  - Monetary and financial statistics:
    - Compilation largely conforms to the Fund’s methodology.
    - A joint effort between the Insurance Commission, SEC, GOCs, BSP to gather data and publish the Other Financial Corporation’s Survey is ongoing.
  - Government finance statistics:
    - Provision of fiscal data is broadly adequate for surveillance.
    - Major areas for improvement: detailed data for levels of the public sector beyond the national government and transition of fiscal data reporting to the GFSM 2001 format.
    - Fiscal Transparency ROSCs conducted in 2002 and 2004.
- II. Data Standards and Quality:
  - Philippines subscribed to the Special Data Dissemination Standards (SDDS) in August 1996.
  - A data ROSC was published in August 2004.

### Table of Common Indicators Required for Surveillance (as of August 21, 2017) — selected items and latest observations
- Exchange rates — Date of Latest Observation 8/21/2017; Date Received 8/1/2017; Frequency D; Memo Items Data Quality—Methodological Soundness O; Data Quality—Accuracy and Reliability O
- International reserve assets and reserve liabilities of the monetary authorities — Date of Latest Observation 7/2017; Date Received 8/2017; Frequency M; Memo Items Data Quality—Methodological Soundness LO; Data Quality—Accuracy and Reliability LO
- Reserve/base money — Date of Latest Observation 6/9/2017; Date Received 7/9/2017; Frequency D/W; Memo Items Data Quality—Methodological Soundness O, LO, LO, LNO; Data Quality—Accuracy and Reliability LO, O, O, O, LO
- Broad money — Date of Latest Observation 6/2017; Date Received 7/2017; Frequency M; Memo Items Data Quality—Methodological Soundness (noted); Data Quality—Accuracy and Reliability (noted)
- Central bank balance sheet — Date of Latest Observation 7/2017; Date Received 8/2017; Frequency M
- Consolidated balance sheet of the banking system — Date of Latest Observation 6/2017; Date Received 8/2017; Frequency M
- Interest rates — Date of Latest Observation 8/21/2017; Date Received 8/21/2017; Frequency D; Memo Items Data Quality—Methodological Soundness O; Data Quality—Accuracy and Reliability O
- Consumer price index — Date of Latest Observation 7/2017; Date Received 8/2017; Frequency M; Memo Items Data Quality—Methodological Soundness O, O, O, O; Data Quality—Accuracy and Reliability O, LO, O, LO, LO
- Revenue, expenditure, balance and composition of financing — general government — Date of Latest Observation 6/2017; Date Received 7/2017; Frequency Q; Memo Items Data Quality—Methodological Soundness LO, LO, O, O; Data Quality—Accuracy and Reliability LO, LO, LO, LO, LO
- Revenue, expenditure, balance and composition of financing — central government — Date of Latest Observation 6/2017; Date Received 7/2017; Frequency M
- Stocks of central government and central government-guaranteed debt — Date of Latest Observation 6/2017; Date Received 7/2017; Frequency M; Memo Items Data Quality—Methodological Soundness LNO; Data Quality—Accuracy and Reliability LNO
- External current account balance — Date of Latest Observation 3/2017; Date Received 6/2017; Frequency M; Memo Items Data Quality—Methodological Soundness O, LO, LO, LO; Data Quality—Accuracy and Reliability LNO, LO, O, LO, LO
- Exports and imports of goods and services — Date of Latest Observation 3/2017; Date Received 6/2017; Frequency M
- GDP/GNP — Date of Latest Observation Q2:2017; Date Received 8/2017; Frequency Q; Memo Items Data Quality—Methodological Soundness LO, LO, O, LO; Data Quality—Accuracy and Reliability LNO, LNO, O, LO, O
- Gross external debt — Date of Latest Observation Q1:2017; Date Received 6/2017; Frequency Q; Memo Items Data Quality—Methodological Soundness O; Data Quality—Accuracy and Reliability O
- International investment position — Date of Latest Observation Q1:2017; Date Received 6/2017; Frequency Q; Memo Items Data Quality—Methodological Soundness O; Data Quality—Accuracy and Reliability O

*Content derived from the IMF staff report: introduction of the standardized report form (SRF) for other financial corporations (OFCs).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17334.pdf_