## 1. Recent Macroeconomic Developments ## Source details **Canonical URL:** [1. Recent Macroeconomic Developments](https://www.imf.org/-/media/files/publications/cr/2025/english/1phlea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1phlea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1phlea2025001-source-pdf.pdf.json) --- ### Context - The Philippine economy achieved disinflation and resilient growth despite external headwinds. - Inflation declined to within the Bangko Sentral ng Pilipinas’s (BSP) target range in 2024 following monetary policy tightening and government measures to reduce food prices. - Domestic demand, underpinned by public spending, supported growth; exports remained subdued and the current account deficit widened. - Poverty rate: 15.5 percent in 2023. - Implementation of reforms to raise tax revenues and progress with devolution and military and uniformed personnel (MUP) pension reforms have been slow. - Authorities’ development priorities: private investment, economic diversification, resilience, critical infrastructure, legislative reforms to support private investment, renewable energy expansion, and disaster resilience. ### Recent Economic Developments (2024–2025 H1) - Growth - 2024 growth: 5.7 percent. - 2025 H1 growth: 5.4 percent year-on-year. - Growth moderated amid strong imports and an election-related public spending ban in 2025Q2. - Unemployment averaged 4.1 percent in 2025Q1–Q3. - High underemployment indicates labor market slack; real wages increased in 2024 but remained below pre-pandemic levels. - High-frequency indicators for H2 2025 point to muted momentum: weak manufacturing, weak FDI, deterioration in business confidence, flooding and typhoon disruptions. - July 2025: allegations of corruption in publicly funded flood-control projects and an independent investigation commission; Senate hearings implicated legislators and government officials. - Inflation - 2023: 6.0 percent. - 2024: 3.2 percent. - Headline inflation averaged 1.7 percent in 2025Q1–Q3. - Core inflation: 2.4 percent in 2025Q1–Q3. - Disinflation driven by BSP tightening, administrative measures (e.g., lower tariff on rice), and easing global commodity prices. - Monetary and Financial Conditions - Since August 2024: policy rate cut totaling 175 basis points; RRR reduction totaling 450 basis points. - These moves eased financial conditions; real policy rate declined to estimated natural rate. - Equity prices rose in 2024 after policy easing, then fell amid global trade shocks and domestic corruption allegations. - Credit growth picked up toward its historical average. - Financial conditions fluctuated since 2025Q1, reflecting exchange rate and equity price developments. - External Sector and Reserves - 2024 current account deficit: 4.0 percent of GDP. - Staff estimate the cyclical-adjusted current account gap: -2.8 percent of GDP (Annex II). - Identified policy gaps contribution: -0.6 percent of GDP, driven by a higher fiscal deficit relative to medium-term norm. - Staff suggest BSP engaged in FX intervention (FXI) in 2024Q4 and early-2025; FXI in 2025 H1 relatively limited. - Gross international reserves: US$109.1 billion as of end-September 2025. - Reserves remained about 200 percent of the IMF’s reserve adequacy metric as of end-2024. - Nominal effective exchange rate (NEER): appreciated in 2025 H1 due to USD and CNY depreciation; depreciated in 2025Q3 amid trade shocks and corruption news; NEER lower by 2.7 percent year-to-date as of September 2025. - Trade Policy Shock - Proposed U.S. trade agreement implies goods exports subject to a 19 percent tariff rate (effective tariff about 19 percent), with 20 percent of exports assumed exempt and some products with higher product-specific tariffs. - Staff estimate direct growth impact of higher US tariffs: about 0.1-0.3 percentage points. - Indirect impacts via trading partner growth and trade policy uncertainty potentially larger. - Climate and Disasters - Typhoons cause recurring economic losses about 0.2-0.3 percent of GDP annually, mainly affecting agriculture and contributing to higher inflation. - Long-term climate models: more intense typhoons and sea level rise could cause losses up to 2 percent of GDP annually absent adaptation measures. ### Outlook and Risks - Growth projections - 2025 projected growth: 5.4 percent. - 2026 projected growth: 5.8 percent. - Medium-term potential: around 6 percent supported by higher investment and productivity; estimates of potential growth revised down from 6.0-6.3 percent in the 2024 Article IV consultation. - Staff estimate a modest negative output gap. - Inflation projections - 2025 projected average inflation: 1.7 percent. - Core inflation projected to increase slightly to 2.6 percent in 2026. - Inflation expected to rise toward midpoint of BSP’s 2-4 percent target band as base effects fade. - Current account - 2025 projected current account deficit: 3.8 percent of GDP. - Expected to improve modestly over the medium term as public and private saving rise, though higher investment will sustain deficits; reforms to boost FDI to help financing. - Risks - Downside growth risks increased relative to last year: escalation of trade measures, prolonged uncertainty, heightened geopolitical tensions, disruptive financial market corrections. - Domestic downside risks: slowdown in public investment and lower investor confidence from corruption allegations; extreme climate events; lower-than-expected reform momentum. - Upside scenarios: accelerated structural and governance reforms, reduced infrastructure gaps boosting investment and FDI. - Inflation risks broadly balanced: deflationary pressures from trade tensions and lower commodity prices vs. inflationary pressures from higher commodity prices, supply disruptions, reversal of rice tariff reduction, and climate shocks. ### Authorities’ Views - Official growth targets revised: - 2025: 5.5-6.5 percent (revised down from 6.0-8.0 percent). - 2026: 6.0-7.0 percent. - Authorities estimate output gap as moderately negative. - Near-term growth propelled by private consumption (low inflation, favorable labor market); investment and exports subdued due to higher tariffs and global uncertainty. - Authorities acknowledge governance problems may weigh on confidence but expect legislative and structural reforms to boost private investment medium-term. - Authorities broadly agree with staff’s inflation and current account outlooks; they project a slightly faster decline in the current account deficit. ### Policy Discussions and Recommendations - Overarching guidance: policies should focus on building resilience amid heightened downside risks. - Monetary policy - Accommodative stance warranted given benign inflation outlook. - Staff’s baseline projection incorporates another 50bps reduction in the policy rate by 2026 Q1. - With headline inflation below midpoint of the target band, expectations anchored, and an emerging negative output gap in 2025, projected accommodative stance is appropriate. - BSP should monitor liquidity and credit for inflation risks when considering future RRR adjustments and maintain clear communication. - Fiscal policy - Gradual fiscal consolidation over the medium-term to reinforce fiscal space; underpinned by durable tax and expenditure reforms. - Macroprudential policies: adjust to preempt vulnerabilities and boost releasable capital buffers. - If external risks materialize: respond nimbly to support growth and protect the vulnerable while preserving fiscal sustainability and financial stability. - Continued structural reforms and governance improvements are critical to raise potential growth and diversify the economy; they also support external balance by enhancing competitiveness and raising savings. - Staff view: a broadly neutral fiscal stance with a small fiscal adjustment (0–0.3 ppt of GDP) is appropriate given the cyclical position, but tax measures could reduce the need to restrain priority spending. - Fiscal specifics and staff advice (selected entries; all values "In percent of GDP") - National government headline deficit: 2024 5.7 percent of GDP (declined by 0.4 ppt from prior year). - National government debt: 60.7 percent of GDP at end-2024. - 2025 fiscal stance: expected to tighten amid weaker growth outlook. - 2026 BESF envisages a modest 0.2 ppt of GDP reduction in headline deficit to 5.5 percent of GDP in 2025, with a significant expenditure adjustment of about 1 ppt of GDP to reverse one-off remittances. - 2026 BESF: deficit target revised upward from 4.7 to 5.3 percent of GDP; privatization receipts assumed 0.3 ppt of GDP in 2026; higher spending on wages, health, education, and transfers to LGUs offset by lower capital and social protection spending. - Fiscal table highlights (selected entries; all values "In percent of GDP") - Revenues: 2023 actual 15.7; 2024 actual 16.7; 2025 BESF 15.8; 2026 BESF 15.9; Staff proj. 2026 BESF 16.2. - Tax revenues: 2023 14.1; 2024 14.4; 2025 BESF 15.0; 2026 BESF 14.9; Staff proj. 2026 BESF 15.0. - Expenditure: 2023 21.8; 2024 22.4; 2025 BESF 21.4; 2026 BESF 21.3; Staff proj. 2026 BESF 20.5. - Capital expenditure: 2023 5.0; 2024 5.0; 2025 BESF 4.5; 2026 BESF 4.8; Staff proj. 2026 BESF 3.7. - Overall balance (GFS 2014): 2023 -6.1; 2024 -5.7; 2025 BESF -5.6; 2026 BESF -5.4; Staff proj. 2026 BESF -4.2. - Primary balance (GFS 2014): 2023 -3.5; 2024 -2.8; 2025 BESF -2.6; 2026 BESF -2.4; Staff proj. 2026 BESF -1.2. - Privatization receipts (memo): 2023 0.0; 2024 0.0; 2025 BESF 0.4; 2026 BESF 0.0; Staff proj. 2026 BESF 0.0. - Nominal GDP (in billions of peso): 2023 24,314; 2024 26,446; 2025 BESF 28,750; 2026 BESF 28,356; Staff proj. 2026 BESF 30,848. ### Medium-term fiscal consolidation: rationale and projections - MTFF Midterm Update (extended to 2030) envisions fiscal deficit to reach 3.1 percent of GDP in 2030. - Implies an annual 0.5-0.6 ppt of GDP reduction in the overall deficit during 2027-2030. - Higher deficit target in 2026 implies the 2028 headline deficit is projected to reach 4.3 percent of GDP compared to 3.7 percent in last year’s fiscal program. - With no new tax policy measures, staff’s baseline projections for 2027–28 assume consolidation largely through lower spending. - Staff projects national government debt to decline gradually to about 60 percent of GDP by 2030, supported by a favorable interest rate-growth differential. - SRDSF overall assessment: low risk of sovereign stress (Annex IV). - Recommendations: - Underpin MTFF targets with concrete tax and expenditure measures to improve transparency and confidence. - Consider embedding fiscal targets within a formal and well-designed fiscal rule to enhance credibility while minimizing procyclicality. ### Tax mobilization to underpin consolidation - Tax mobilization should underpin fiscal consolidation to ensure sustainability and make it more growth friendly. - Observations: - Philippines has significant potential to raise tax revenues; revenue-based measures typically have lower multipliers than spending measures. - Tax administration reforms remain a priority; gains may take time and be gradual. - Complement administration reforms with tax policy measures to accelerate mobilization. - Suggested tax policy directions and measures (as listed in the source) - Excise tax / Corporate income tax: - Streamline non-investment incentives (e.g., reduced rate for SMEs, minimum tax, optional deduction, and social objectives) - Streamline investment incentives (e.g., Pre-CREATE, CREATE MORE, tax holiday, and special rate of 5 percent) - Introduce qualified domestic minimum top-up tax (part of the Two Pillar Solution) - Personal income tax: - Rationalize Peso 90,000 exemption for 13th month salary and other bonuses - Rationalize exemption of SSS, GSIS, Pag-Ibig contributions and other dues - Rationalize minimis benefits exemption - VAT: - Rationalize exemptions on social objectives (e.g., ownership of dwellings, education and health, senior citizens, people with disabilities, and cooperatives) - Rationalize exemptions on agriculture and fisheries - Increase excise tax on pre-mixed alcoholic beverages - Increase excise tax on sweetened beverages and introduce excise tax on pre-packaged foods lacking nutritional value - Increase excise tax on coal - Introduce excise tax on single-use plastics - Introduce excise tax on online gambling - Others: - Introduce a new motor vehicles road user's tax - Additional guidance: - Continuous monitoring of the costs of tax incentives and evaluating their benefits is critical, especially given CREATE MORE Act enhancements. - The general tax amnesty (GTA) under consideration is not advisable as anticipated GTAs lower regular voluntary compliance; voluntary disclosure programs preferred. - Broad and sustained relaxation of the Bank Deposit Secrecy Laws may help mitigate compliance risks and should be complemented by accelerating tax administration reforms, while managing money laundering and governance risks. ### Public Financial Management (PFM), fiscal risks, and public investment - Continue efforts to enhance PFM and manage fiscal risks. - PIMA update confirmed improvements since 2018. - Strengthening implementation of investment planning, project appraisal, selection, management, and procurement remains critical to enhance public expenditure effectiveness and accountability and reduce corruption vulnerabilities. - Rationalization of unprogrammed appropriations to previous historical levels is welcome; efforts should continue to strengthen budget credibility and maintain fiscal discipline. - New PPP Code may strengthen fiscal risk management; prioritize enhancing fiscal risk analysis, monitoring contingent liabilities (especially related to LGUs), and improving LGUs’ public investment planning. - Public sector investment in adaptation: - Investment in adaptation and resilient infrastructure is critical to raise macroeconomic resilience to climate shocks and protect the vulnerable. - Financing these investments with additional revenues would help mitigate the impact on public debt and preserve fiscal space. - Enhance green PFM practices in line with C-PIMA (e.g., enhancing climate tagging systems and integrating climate considerations in estimating maintenance needs and costs). ### Monetary and exchange rate policies (medium-term guidance) - Policy rate and stance: - Staff baseline: another 50bps reduction in policy rate by 2026 Q1. - Return of inflation to midpoint in 2026 expected to bring real interest rate toward lower bound of staff’s estimated natural rate range. - Projected accommodative stance appropriate with headline inflation below midpoint, expectations anchored, and emerging negative output gap in 2025. - BSP should monitor liquidity and credit for inflation risks when considering future RRR adjustments and maintain clear communication. - Exchange rate and FX intervention: - Exchange rate should continue to act as a shock absorber. - FXI can mitigate abrupt exchange rate movements when supported by adequate reserve coverage; should be temporary and used for large shocks only. - Monetary policy and climate: - Climate shocks can increase inflation by up to 0.6 percentage points (annualized) in a typical year and disproportionately impact agriculture. - BSP should accommodate temporary inflation spikes from climate shocks while containing increases in inflation expectations; coordinated fiscal measures (e.g., lowering tariffs on food imports) can help. ### Financial sector policies and risks - Overall systemic financial risks: moderate and broadly unchanged since last year. - Banking system metrics (selected) - NPL ratio: 3.3 percent as of end-June 2025. - NPL coverage ratio: 95.4 percent as of end-June 2025. - Residential NPL ratio in affected segments: 6.4 percent at end-June 2025. - Pockets of vulnerabilities to monitor: - Persistently high commercial and residential vacancy rates in some regions and segments. - Household debt growth, rapid expansion in bank credit card and salary loans, and increased credit access through NBFIs and digital finance amid low household saving rates. - Increased banks’ exposure to the public sector since the pandemic. - Firms with low debt servicing capacity have declined but remain higher than pre-pandemic levels. - Weak earnings in the manufacturing sector; manufacturing and wholesale/retail loans account for about 19 percent of domestic loans at end-August 2025. - Banks’ interconnectedness with the corporate sector and complex conglomerate structures pose potential contagion channels. - NBFIs, some not supervised by the BSP, have expanded lending to real estate, consumer loans, and MSMEs. - Macroprudential policy priorities: - Accelerate development of tools and reduction of data gaps to support macroprudential decisions. - Refine and accelerate framework for the countercyclical capital buffer (CCyB) with IMF TA support. - Consider moving towards a positive neutral level for the CCyB to preempt vulnerability build-up and provide releasable buffers. - Replace the cap on commercial real estate exposures with a sectoral systemic risk buffer to better capture broader real estate risks and provide price-based incentives. ### Crisis management, resolution, and financial oversight - Progress reported on developing the Lender of Last Resort (LOLR) (covering ELA), resolution frameworks, and a Systemic Risk Crisis Management Manual. - Monetary Board approved scope and principles of the LOLR Framework (covering ELA) in June 2025; LOLR Framework Committee updating the framework. - BSP now has authority to request data from banks regarding transactions with other entities in the same conglomerate. - Recommended supervisory enhancements: - Expand supervisory colleges for conglomerate supervision. - Address conglomerate-related data gaps. - Close data gaps to enhance monitoring of NBFI developments and interlinkages. - Crypto and digital finance: - BSP extended moratorium on granting new licenses for Virtual Asset Service Providers (VASPs) for an indefinite period in August 2025. - BSP exploring two use cases for wholesale CBDC with IMF TA support. - AML/CFT progress: - Philippines exited the FATF grey list in 2025 and was removed from the EU list of high-risk jurisdictions for money laundering and terrorism financing. - Next FATF mutual evaluation in 2027. - Recommended measures: pursue amendments to Bank Deposits Secrecy Laws aligned with international good practices; enhance capacity to investigate crypto asset cases; adopt updated national AML/CFT strategy after National Risk Assessment completion. ### Downside scenario and contingency policy guidance - Illustrative downside scenario (aligned with WEO Scenario A, Oct 2025) layers: - (i) higher tariffs and supply-chain disruptions; - (ii) higher inflation expectations; - (iii) higher global sovereign yields; - (iv) tighter global financial conditions; - (v) lower global demand for US assets. - QPM analysis of combined shocks: - Peak output gap reduction: 1.5 percent relative to baseline, driven by tighter financial conditions and weaker exports. - Higher sovereign and corporate yields would weigh on public finance and private investment. - Banking system could face higher NPLs; corporates in trade-oriented sectors particularly affected. - First two layers in isolation may reduce room for easing monetary policy given persistent inflation expectations. - Combined shocks expected to have a small negative impact on inflation and a modest reduction in the policy rate. - Policy guidance under scenario: - Monetary policy: room to be more accommodative given sizeable output gap. - Fiscal policy: let automatic stabilizers work on revenue side, provide targeted and temporary support for the most vulnerable, adjust spending composition (e.g., increase infrastructure investment). - With debt projected to rise above medium-term target, reinitiate fiscal consolidation once shocks subside. - In event of capital outflows, exchange rate should act as a shock absorber; FXI used temporarily for disorderly market conditions. ### Structural policies to boost growth and resilience - Needed reforms and priorities: - Investment and productivity-enhancing reforms to accelerate inclusive growth, diversify the economy, and boost resilience. - Strengthen PFM: improve data quality, timeliness, capital project appraisal and monitoring, procurement transparency, independent ex-post audits, and create an independent review board for procurement complaints. - Integrate DIME with core PFM systems to improve reporting. - Strengthen contract enforcement and property rights. - Climate resilience and energy security: ensure investments in agriculture, connectivity, and energy infrastructure are climate-resilient; facilitate renewable energy investments by improving transmission and distribution capacity, reducing delays in land acquisition, and strengthening financing mechanisms. - Human capital and technology: invest in education and adaptive social protection; address skills shortages including AI complementarity in sectors like BPO. - Trade integration: pursue deeper trade agreements, lower non-tariff barriers, reduce restrictive services regulation, streamline customs, revise procurement rules. - Authorities’ emphasis: - Further reforms to boost private investment and improve governance; effective and timely implementation of passed legislative reforms is crucial. - Authorities plan to expand job facilitation programs, upskill the labor force, and continue investments in health and education. - Commitments to finalize updated Nationally Determined Contributions (NDC) focused on reducing greenhouse gas emissions, increasing food and energy security, and alleviating poverty. - Continued commitment to concluding trade negotiations (EU and Chile), beginning negotiations with Canada, and fast-tracking CPTPP application. ### Staff appraisal: macro outlook and policy stance - Authorities handled external headwinds well; growth resilient due to public spending and private consumption despite global trade policy uncertainty and weather-related disruptions. - Inflation declined to below BSP’s target range following monetary tightening and government measures to reduce food prices. - 2024 external sector position assessed weaker than level implied by fundamentals and desirable policies. - Outlook: - Growth expected to moderate in 2025 before picking up over the medium-term. - Inflation expected to gradually increase towards midpoint of BSP’s target range. - Inflation projected to rise to 2.8 percent in 2026 and increase towards midpoint over medium term. - Current account deficit projected to improve modestly. - Risks to growth tilted to the downside; risks around inflation broadly balanced. - Policy recommendations: - Fiscal: gradual consolidation supported by concrete tax measures and PFM reforms; consider durable tax measures to limit need to restrain priority spending; strengthen budget credibility and public investment processes to reduce corruption vulnerabilities. - Monetary: projected accommodative stance appropriate given favorable inflation outlook and downside growth risks; further policy rate cuts warranted with headline inflation below midpoint and an emerging negative output gap; continue to allow exchange rate to act as a shock absorber. - Continue efforts to enhance capital markets and monetary policy transmission. ### Annex highlights and selected macrofinancial projections - Real GDP growth (percent change): - 2023: 5.5 - 2024: 5.7 - 2025 (Proj.): 5.4 - 2026 (Proj.): 5.8 - 2027 (Proj.): 6.1 - 2028 (Proj.): 6.0 - Consumer prices (period average, percent change): - 2023: 6.0 - 2024: 3.2 - 2025 (Proj.): 1.7 - 2026 (Proj.): 2.8 - 2027 (Proj.): 3.0 - 2028 (Proj.): 3.0 - Current account balance (in percent of GDP): - 2023: -2.8 - 2024: -4.0 - 2025 (Proj.): -3.8 - 2026 (Proj.): -3.4 - 2027 (Proj.): -3.1 - 2028 (Proj.): -2.9 - Gross reserves (US$ billions, end of period): - 2023: 103.8 - 2024: 106.3 - 2025 (Proj.): 107.3 - 2026 (Proj.): 106.5 - 2027 (Proj.): 105.0 - 2028 (Proj.): 103.3 - National government overall balance (in percent of GDP): - 2023: -6.1 - 2024: -5.7 - 2025 (Proj.): -5.4 - 2026 (Proj.): -5.2 - 2027 (Proj.): -4.7 - 2028 (Proj.): -4.2 - National government gross debt (in percent of GDP): - 2023: 60.1 - 2024: 60.7 - 2025 (Proj.): 62.2 - 2026 (Proj.): 62.7 - 2027 (Proj.): 62.5 - 2028 (Proj.): 61.8 ### Sovereign risk and DSA (Annex IV) - Final assessment: Overall risk of sovereign stress — Low. - Horizon assessments: - Medium term: Low. - Long term: Moderate. - Public debt trajectory: "Public debt is expected to gradually decline to about 60 percent of GDP over the medium-term." - Debt coverage notes: - Bond Sinking Fund: 2.8 percent of GDP (end-2024). - Intra-sector bond holding: 4.9 percent of GDP (end-2024). - Total consolidated general government debt: 53.9 percent of GDP (end-2024). - Difference between consolidated general government debt and national government debt: about 6.8 percentage points of GDP lower. - Policy implications: - Pursue fiscal consolidation to reduce gross financing needs. - Continue to rebuild policy buffers over the medium term. - Implement structural reforms to boost growth potential and tackle climate-related risks. - Leverage Bond Sinking Fund to reduce refinancing risk and strengthen debt management tools. ### External Sector Assessment (Annex II) — key findings - NIIP widened to -14.2 percent of GDP in 2024 from -11.6 percent of GDP in 2023. - Foreign reserves held by the BSP accounted for about 42 percent of total external assets in 2024. - Total external debt increased to 29.8 percent of GDP in 2024 from 28.7 percent of GDP in 2023. - CA deficit widened to 4.0 percent of GDP in 2024 from 2.8 percent of GDP in 2023. - EBA model estimates: cyclically adjusted CA of −3.7 percent and a CA norm of -0.9 percent of GDP in 2024. - Staff CA gap: -2.8 percent of GDP for 2024, with -0.6 percent attributed to policy gaps. ### Risk Assessment Matrix (selected risks and policy recommendations) - Geopolitical Tensions — Likelihood: High; Expected Impact: Medium. - Use fiscal space for targeted support; delay policy cuts if inflation expectations rise; accelerate trade integration. - Escalating Trade Measures and Prolonged Uncertainty — Likelihood: High; Expected Impact: High. - Monetary policy can be eased further; use fiscal space for targeted support; financial sector policies to support viable firms. - Financial Market Volatility and Correction — Likelihood: High; Expected Impact: Medium. - Ensure financial sector health and market liquidity; keep exchange rate flexible, use FXI for disorderly conditions. - Commodity Price Volatility — Likelihood: High; Expected Impact: Medium. - Stand ready to delay policy cuts; avoid subsidies and lowering taxes; provide targeted transfers to low-income households. - Natural Disasters — Likelihood: High; Expected Impact: High. - Balance monetary policy between inflation and activity effects; provide targeted fiscal assistance; prioritize disaster-resistant infrastructure. ### Data issues (Annex VI) — selected points - Data Adequacy Assessment Rating (overall): B. - Granularity: B. - Median Rating: BBBBBBB. - Key data gaps: - Limited coverage of the informal/illegal economy. - Distinction between private and public gross fixed investment not readily available. - Coverage of general government spending affected by lack of barangay data. - Need improved accuracy in quarterly central bank assets and liabilities statistics due to infrequent reporting. - Corrective actions and capacity development priorities: - Use annual financial statements to address barangay and financial transactions data gaps and move from cash to accrual recording. - Plans to rebase GDP to 2023; expand PPI coverage to services; BSP to improve consistency across IIP, BOP, EDS, MFS, CDIS, CPIS with IMF TA support. ### IMF staff statement and updated Q3 2025 outturns (Nov 24, 2025) - Q3 2025 real GDP growth: 4.0 percent year-on-year (staff projection 4.7 percent, consensus 5.5 percent). - Q3 drivers: weaker gross fixed capital formation and private consumption; sharp decline in public construction amid corruption allegations related to flood-control projects. - Multiple severe typhoons (including super typhoon Nando/Ragasa) further weighed on growth and agricultural output, transport, and construction. - Staff revised 2025 growth projection from 5.4 to 5.1 percent and revised 2026 from 5.8 to 5.6 percent. - Inflation expected to remain broadly unchanged. - Policy advice unchanged: accommodative monetary stance appropriate; fiscal policy: gradual consolidation and broadly neutral stance in 2026. _italic_Source: 1phlea2025001-source-pdf - 1. Recent Macroeconomic Developments_ ### 1. Recent Macroeconomic Developments ________________________________________________________ 28 ### 1. Recent Macroeconomic Developments ### Context - The Philippine economy achieved disinflation and resilient growth despite external headwinds. - Inflation declined to within the Bangko Sentral ng Pilipinas’s (BSP) target range in 2024 following monetary policy tightening and government measures to reduce food prices. - Domestic demand, underpinned by public spending, supported growth; exports remained subdued and the current account deficit widened. - Poverty rate: 15.5 percent in 2023. - Implementation of reforms to raise tax revenues and progress with devolution and military and uniformed personnel (MUP) pension reforms have been slow. - Authorities’ development priorities: private investment, economic diversification, resilience, critical infrastructure, legislative reforms to support private investment, renewable energy expansion, and disaster resilience. ### Recent Economic Developments (2024–2025 H1) - Growth - 2024 growth: 5.7 percent. - 2025 H1 growth: 5.4 percent year-on-year. - Growth moderated amid strong imports and an election-related public spending ban in 2025Q2. - Unemployment averaged 4.1 percent in 2025Q1–Q3. - High underemployment indicates labor market slack; real wages increased in 2024 but remained below pre-pandemic levels. - High-frequency indicators for H2 2025 point to muted momentum: weak manufacturing, weak FDI, deterioration in business confidence, flooding and typhoon disruptions. - July 2025: allegations of corruption in publicly funded flood-control projects and an independent investigation commission; Senate hearings implicated legislators and government officials. - Inflation - 2023: 6.0 percent. - 2024: 3.2 percent. - Headline inflation averaged 1.7 percent in 2025Q1–Q3. - Core inflation: 2.4 percent in 2025Q1–Q3. - Disinflation driven by BSP tightening, administrative measures (e.g., lower tariff on rice), and easing global commodity prices. - Monetary and Financial Conditions - Since August 2024: policy rate cut totaling 175 basis points; RRR reduction totaling 450 basis points. - These moves eased financial conditions; real policy rate declined to estimated natural rate. - Equity prices rose in 2024 after policy easing, then fell amid global trade shocks and domestic corruption allegations. - Credit growth picked up toward its historical average. - Financial conditions fluctuated since 2025Q1, reflecting exchange rate and equity price developments. - External Sector and Reserves - 2024 current account deficit: 4.0 percent of GDP. - Staff estimate the cyclical-adjusted current account gap: -2.8 percent of GDP (Annex II). - Identified policy gaps contribution: -0.6 percent of GDP, driven by a higher fiscal deficit relative to medium-term norm. - Staff suggest BSP engaged in FX intervention (FXI) in 2024Q4 and early-2025; FXI in 2025 H1 relatively limited. - Gross international reserves: US$109.1 billion as of end-September 2025. - Reserves remained about 200 percent of the IMF’s reserve adequacy metric as of end-2024. - Nominal effective exchange rate (NEER): appreciated in 2025 H1 due to USD and CNY depreciation; depreciated in 2025Q3 amid trade shocks and corruption news; NEER lower by 2.7 percent year-to-date as of September 2025. - Trade Policy Shock - Proposed U.S. trade agreement implies goods exports subject to a 19 percent tariff rate (effective tariff about 19 percent), with 20 percent of exports assumed exempt and some products with higher product-specific tariffs. - Staff estimate direct growth impact of higher US tariffs: about 0.1-0.3 percentage points. - Indirect impacts via trading partner growth and trade policy uncertainty potentially larger. - Climate and Disasters - Typhoons cause recurring economic losses about 0.2-0.3 percent of GDP annually, mainly affecting agriculture and contributing to higher inflation. - Long-term climate models: more intense typhoons and sea level rise could cause losses up to 2 percent of GDP annually absent adaptation measures. ### Outlook and Risks - Growth projections - 2025 projected growth: 5.4 percent. - 2026 projected growth: 5.8 percent. - Medium-term potential: around 6 percent supported by higher investment and productivity; estimates of potential growth revised down from 6.0-6.3 percent in the 2024 Article IV consultation. - Staff estimate a modest negative output gap. - Inflation projections - 2025 projected average inflation: 1.7 percent. - Core inflation projected to increase slightly to 2.6 percent in 2026. - Inflation expected to rise toward midpoint of BSP’s 2-4 percent target band as base effects fade. - Current account - 2025 projected current account deficit: 3.8 percent of GDP. - Expected to improve modestly over the medium term as public and private saving rise, though higher investment will sustain deficits; reforms to boost FDI to help financing. - Risks - Downside growth risks increased relative to last year: escalation of trade measures, prolonged uncertainty, heightened geopolitical tensions, disruptive financial market corrections. - Domestic downside risks: slowdown in public investment and lower investor confidence from corruption allegations; extreme climate events; lower-than-expected reform momentum. - Upside scenarios: accelerated structural and governance reforms, reduced infrastructure gaps boosting investment and FDI. - Inflation risks broadly balanced: deflationary pressures from trade tensions and lower commodity prices vs. inflationary pressures from higher commodity prices, supply disruptions, reversal of rice tariff reduction, and climate shocks. ### Authorities’ Views - Official growth targets revised: - 2025: 5.5-6.5 percent (revised down from 6.0-8.0 percent). - 2026: 6.0-7.0 percent. - Authorities estimate output gap as moderately negative. - Near-term growth propelled by private consumption (low inflation, favorable labor market); investment and exports subdued due to higher tariffs and global uncertainty. - Authorities acknowledge governance problems may weigh on confidence but expect legislative and structural reforms to boost private investment medium-term. - Authorities broadly agree with staff’s inflation and current account outlooks; they project a slightly faster decline in the current account deficit. ### Policy Discussions and Recommendations - Overarching guidance: policies should focus on building resilience amid heightened downside risks. - Monetary policy: accommodative stance warranted given benign inflation outlook. - Fiscal policy - Gradual fiscal consolidation over the medium-term to reinforce fiscal space; underpinned by durable tax and expenditure reforms. - Macroprudential policies: adjust to preempt vulnerabilities and boost releasable capital buffers. - If external risks materialize: respond nimbly to support growth and protect the vulnerable while preserving fiscal sustainability and financial stability. - Continued structural reforms and governance improvements are critical to raise potential growth and diversify the economy; they also support external balance by enhancing competitiveness and raising savings. - Fiscal specifics and staff advice - 2024 national government headline deficit: 5.7 percent of GDP (declined by 0.4 ppt from prior year), driven by one-off GOCC remittances and higher VAT receipts (transition from monthly to quarterly VAT collections in 2023); national government debt: 60.7 percent of GDP at end-2024. - Staff estimate underlying fiscal stance in 2024 broadly neutral; structural primary balance deterioration implies more fiscal effort needed in future years. - 2025 fiscal stance: expected to tighten amid weaker growth outlook; 2026 BESF envisages a modest 0.2 ppt of GDP reduction in headline deficit to 5.5 percent of GDP in 2025, with a significant expenditure adjustment of about 1 ppt of GDP to reverse one-off remittances. - 2026 BESF: deficit target revised upward from 4.7 to 5.3 percent of GDP; privatization receipts assumed 0.3 ppt of GDP in 2026; higher spending on wages, health, education, and transfers to LGUs offset by lower capital and social protection spending. - Staff recommend consideration of tax measures to limit restraint in priority spending that disproportionately impacts the vulnerable. - Fiscal table highlights (selected entries; all values "In percent of GDP"): - Revenues: 2023 actual 15.7; 2024 actual 16.7; 2025 BESF 15.8; 2026 BESF 15.9; Staff proj. 2026 BESF 16.2. - Tax revenues: 2023 14.1; 2024 14.4; 2025 BESF 15.0; 2026 BESF 14.9; Staff proj. 2026 BESF 15.0. - Expenditure: 2023 21.8; 2024 22.4; 2025 BESF 21.4; 2026 BESF 21.3; Staff proj. 2026 BESF 20.5. - Capital expenditure: 2023 5.0; 2024 5.0; 2025 BESF 4.5; 2026 BESF 4.8; Staff proj. 2026 BESF 3.7. - Overall balance (GFS 2014): 2023 -6.1; 2024 -5.7; 2025 BESF -5.6; 2026 BESF -5.4; Staff proj. 2026 BESF -4.2. - Primary balance (GFS 2014): 2023 -3.5; 2024 -2.8; 2025 BESF -2.6; 2026 BESF -2.4; Staff proj. 2026 BESF -1.2. - Privatization receipts (memo): 2023 0.0; 2024 0.0; 2025 BESF 0.4; 2026 BESF 0.0; Staff proj. 2026 BESF 0.0. - Nominal GDP (in billions of peso): 2023 24,314; 2024 26,446; 2025 BESF 28,750; 2026 BESF 28,356; Staff proj. 2026 BESF 30,848. - Staff view: a broadly neutral fiscal stance with a small fiscal adjustment (0–0.3 ppt of GDP) is appropriate given the cyclical position, but tax measures could reduce the need to restrain priority spending. *Source: 1phlea2025001-source-pdf - 1. Recent Macroeconomic Developments* ### 16. Over the medium term, the authorities should implement gradual fiscal consolidation, ### 16. Over the medium term, the authorities should implement gradual fiscal consolidation, ### Medium-term fiscal consolidation: rationale and projections - The updated MTFF (Midterm Update of the MTFF), extended to 2030, envisions the fiscal deficit to reach 3.1 percent of GDP in 2030. - This implies an annual 0.5-0.6 ppt of GDP reduction in the overall deficit during 2027-2030. - The pace of medium-term consolidation is broadly unchanged relative to last year’s approved fiscal program, but: - The higher deficit target in 2026 implies that the 2028 headline deficit is projected to reach 4.3 percent of GDP compared to the 3.7 percent of GDP in last year’s fiscal program. - With no new tax policy measures, staff’s baseline projections for 2027–28 assume the consolidation will be achieved largely through lower spending. - Staff projects national government debt to decline gradually to about 60 percent of GDP by 2030, supported by a favorable interest rate-growth differential. - The overall assessment under the Sovereign Risk and Debt Sustainability Framework (SRDSF) indicates low risk of sovereign stress (Annex IV). - The MTFF’s medium-term consolidation (with the primary deficit eliminated by 2030) is assessed as broadly appropriate because it would: - ensure public debt is sustainable even if potential growth is lower than currently envisioned; - help raise fiscal space given the shock-prone nature of the Philippines’ economy; - reduce gross financing needs and risk of crowding out of private investment; and - help strengthen the Philippines’ external position. ### Enhancements to the MTFF and fiscal framework - The Midterm Update of the MTFF extended macroeconomic assumptions and fiscal program to 2030 and clarified medium-term fiscal targets—to reduce national government debt-to-GDP ratio to below 60 percent and fiscal deficit to 3.1 percent. - Recommendations: - Underpin MTFF targets with concrete tax and expenditure measures to improve transparency and confidence. - Consider embedding fiscal targets within a formal and well-designed fiscal rule to enhance credibility while minimizing procyclicality. ### Tax mobilization to underpin consolidation - Tax mobilization should underpin fiscal consolidation to ensure sustainability and make it more growth friendly. - Observations: - The Philippines has significant potential to raise tax revenues and revenue-based measures typically have lower multipliers than spending measures. - Tax administration reforms remain a priority, particularly in compliance risk management and data analytics, but gains may take time and be gradual. - Complementing administration reforms with tax policy measures can accelerate and make mobilization more certain. - Suggested tax policy directions and measures (as listed in the source): - Excise tax / Corporate income tax: - Streamline non-investment incentives (e.g., reduced rate for SMEs, minimum tax, optional deduction, and social objectives) - Streamline investment incentives (e.g., Pre-CREATE, CREATE MORE, tax holiday, and special rate of 5 percent) - Introduce qualified domestic minimum top-up tax (part of the Two Pillar Solution) - Personal income tax: - Rationalize Peso 90,000 exemption for 13th month salary and other bonuses - Rationalize exemption of SSS, GSIS, Pag-Ibig contributions and other dues - Rationalize minimis benefits exemption - VAT: - Rationalize exemptions on social objectives (e.g., ownership of dwellings, education and health, senior citizens, people with disabilities, and cooperatives) - Rationalize exemptions on agriculture and fisheries - Increase excise tax on pre-mixed alcoholic beverages - Increase excise tax on sweetened beverages and introduce excise tax on pre-packaged foods lacking nutritional value - Increase excise tax on coal - Introduce excise tax on single-use plastics - Introduce excise tax on online gambling - Others: - Introduce a new motor vehicles road user's tax - Additional guidance: - Continuous monitoring of the costs of tax incentives and evaluating their benefits with the aim of streamlining them is critical, especially given the recent enhancement of tax incentives under the CREATE MORE Act. - The general tax amnesty (GTA) under consideration is not advisable as anticipated GTAs lower regular voluntary compliance; implementing voluntary disclosure programs should be preferred. - Broad and sustained relaxation of the Bank Deposit Secrecy Laws may help mitigate compliance risks and should be complemented by accelerating tax administration reforms, while properly managing potential money laundering and governance risks. ### Public financial management (PFM), fiscal risks, and public investment - Continue efforts to enhance PFM and manage fiscal risks: - The recently completed Public Investment Management Assessment (PIMA) update confirmed improvements since 2018. - Strengthening implementation of investment planning, project appraisal, selection, management, and procurement remains critical to enhance public expenditure effectiveness and accountability and reduce corruption vulnerabilities. - Rationalization of unprogrammed appropriations to previous historical levels is welcome; efforts should continue to strengthen budget credibility and maintain fiscal discipline. - While the new PPP Code may strengthen fiscal risk management, enhancing fiscal risk analysis, monitoring contingent liabilities (especially related to LGUs), and improving LGUs’ public investment planning should be prioritized. - Public sector investment in adaptation: - Investment in adaptation and resilient infrastructure is critical to raise macroeconomic resilience to climate shocks and protect the vulnerable. - Financing these investments with additional revenues would help mitigate the impact on public debt and preserve fiscal space. - Enhance green PFM practices in line with C-PIMA (e.g., enhancing climate tagging systems and integrating climate considerations in estimating maintenance needs and costs). ### Authorities’ views on fiscal policy and PFM - Fiscal consolidation commitment: - Authorities remain committed to fiscal consolidation and acknowledge importance of advancing tax and expenditure reforms. - Fiscal targets in the MTFF were recalibrated proactively to accommodate slower-than-expected growth prospects, external headwinds, and additional expenditure requirements to support growth. - Authorities are moving forward with excise taxes on single-use plastics, GTA, extension of the estate tax amnesty, and qualified domestic minimum top-up tax. - They do not plan to implement additional tax policy measures, but will continue digitalization of tax administration and stricter enforcement of tax compliance. - Authorities view GTA as crucial for broader tax transparency objectives (e.g., facilitating relaxation of Bank Deposit Secrecy Laws and promoting automatic exchange of information), despite potential negative impacts on regular compliance. - Timeline for implementing full devolution of LGUs has been extended until 2028; no scope to push forward with MUP reforms at current juncture though filed bills will be studied. - PFM improvements: - Authorities are committed to enhancing PFM, see recent corruption allegations related to flood control projects as an opportunity to advance transparency, curb budget insertions by politicians, advance the Philippine Budgeting Code, and rationalize unprogrammed appropriations. - Digitalization of PFM is essential and being actively promoted. - PPP center is working to introduce forward-looking parameters to assess PPP risks and plans to incorporate them into the Guidance Note for the Risk Management Fund. ### Monetary and exchange rate policies (summary of related medium-term guidance) - Policy rate: - Staff’s baseline projection incorporates another 50bps reduction in the policy rate by 2026 Q1. - Return of inflation to the midpoint of the target band in 2026 is expected to bring the real interest rate toward the lower bound of staff’s estimated natural rate range. - With headline inflation below the midpoint of the target band, expectations anchored, and an emerging negative output gap in 2025, the projected accommodative stance is appropriate. - The BSP should monitor liquidity and credit for inflation risks when considering future RRR adjustments and maintain clear communication. - Exchange rate and FX intervention: - The exchange rate should continue to play its role as a shock absorber. - FX interventions (FXI) can mitigate abrupt exchange rate movements when supported by adequate reserve coverage, but should be temporary and only used for large shocks to avoid frequent interventions that hinder market development and risk moral hazard. - Monetary policy and climate: - Climate shocks can increase inflation by up to 0.6 percentage points (annualized) in a typical year and disproportionately impact the agriculture sector. - BSP should accommodate temporary inflation spikes from climate shocks while containing increases in inflation expectations; coordinated fiscal measures (e.g., lowering tariffs on food imports) can help. ### Financial sector policies and risks - Overall systemic financial risks: - Overall systemic financial risks remain moderate and broadly unchanged since last year. - Banking system is well-capitalized, liquid, and profitable. - NPL ratio is contained at 3.3 percent, and NPL coverage ratio is 95.4 percent as of end-June 2025. - Overall credit growth is healthy and the credit gap remains closed. - Pockets of vulnerabilities to monitor: - Persistently high commercial and residential vacancy rates in some regions and segments; residential NPL ratio at 6.4 percent at end-June 2025 in affected segments. - Household debt growth, rapid expansion in bank credit card and salary loans, and increased credit access through NBFIs and digital finance amid low household saving rates. - Increased banks’ exposure to the public sector since the pandemic. - Firms with low debt servicing capacity have declined but remain higher than pre-pandemic levels. - Weak earnings in the manufacturing sector; manufacturing and wholesale/retail loans account for about 19 percent of domestic loans at end-August 2025. - Banks’ interconnectedness with the corporate sector and complex conglomerate structures pose potential contagion channels. - NBFIs, some not supervised by the BSP, have expanded lending to real estate, consumer loans, and MSMEs. - Macroprudential policy priorities: - Accelerate development of tools and reduction of data gaps to support macroprudential decisions. - Refine and accelerate framework for the countercyclical capital buffer (CCyB) with IMF TA support. - Consider moving towards a positive neutral level for the CCyB to preempt vulnerability build-up and provide releasable buffers. - Replace the cap on commercial real estate exposures with a sectoral systemic risk buffer to better capture broader real estate risks and provide price-based incentives, ensuring no unintended changes in the macroprudential stance. _italic_Source: IMF staff summary of the content unit. ### 31. Progress to strengthen crisis management and resolution, and financial oversight, in ### 31. Progress to strengthen crisis management and resolution, and financial oversight, in ### Financial sector frameworks and supervision - Progress reported on developing the Lender of Last Resort (LOLR) (covering Emergency Liquidity Assistance (ELA)), resolution frameworks, and a Systemic Risk Crisis Management Manual. - The BSP now has the authority to request data from banks regarding transactions with other entities belonging to the same conglomerate. - Financial supervision could be further strengthened by: - expanding supervisory colleges for conglomerate supervision; - addressing conglomerate-related data gaps. - Ongoing efforts to close data gaps will enhance monitoring of NBFI developments, including interlinkages with the banking sector. - The expansion in crypto-asset adoption calls for robust regulation: - The BSP extended its moratorium on granting new licenses for Virtual Asset Service Providers (VASPs) for an indefinite period in August 2025. - The BSP has been exploring two use cases for the wholesale central bank digital currency (CBDC) (settling of tokenized government bonds and enhancing cross-border payments) with IMF TA support and is actively promoting digital payments. - The BSP’s efforts to conduct climate stress testing and enhance tools to assess physical and transition risks should continue. - Plans to increase capitalization of Landbank and the Development Bank of the Philippines are welcome to better enable them to fulfill their mandates. ### Anti–Money Laundering / Combating the Financing of Terrorism (AML/CFT) - Advancing AML/CFT efforts remains a priority: - In 2025, the Philippines successfully exited the Financial Action Task Force (FATF) grey list and was removed from the European Union list of high-risk jurisdictions for money laundering and terrorism financing. - Next FATF mutual evaluation in 2027. - Recommended measures: - Pursue amendments to the Bank Deposits Secrecy Laws in line with international good practices to enhance the BSP’s supervisory powers and strengthen AML/CFT supervisory effectiveness. - Continue pursuing CFT improvements, especially in identification and prosecution of terrorist financing cases. - Enhance capacity to investigate cases involving crypto assets. - Adopt an updated national AML/CFT strategy upon completion of the ongoing National Risk Assessment. - Strengthening AML/CFT frameworks is important to support broader anti-corruption efforts and combat laundering of proceeds of corruption. ### Authorities’ views on financial sector resilience - Authorities consider vulnerabilities well-contained while closely monitoring developments. - BSP stress tests confirm banks have sufficient capital buffers to absorb potential asset quality deterioration, including in the real estate, household and manufacturing sectors. - BSP acknowledges limitations in monitoring consumer credit provided by lending companies outside its supervisory scope; legal authority to supervise credit-granting entities exists but implementation discussions are underway. - An outstanding bill proposing transfer of the national credit bureau to the BSP is expected to strengthen oversight. - Interconnectedness risks between banks and NBFIs are assessed to be manageable; BSP continues monitoring linkages and improving data collection. - Progress on systemic risk assessment tools; BSP plans to introduce a macroprudential stress testing model and is considering moving towards a positive neutral CCyB rate, with support from IMF TA. - On crypto assets, authorities note usage is primarily for remittances and investment; a sectoral AML/CFT risk assessment of virtual assets will be included in the National AML/CFT Risk Assessment process. - The AML Council remains committed to meeting evolving FATF standards ahead of the next mutual evaluation. ### Downside risks and contingent policies - Authorities should prepare for potential adverse macroeconomic shocks given heightened macroeconomic uncertainty. - Illustrative downside scenario (aligned with Scenario A in Box 1.2 of the October 2025 World Economic Outlook) includes layers: - (i) higher tariffs and supply-chain disruptions; - (ii) higher inflation expectations; - (iii) higher global sovereign yields; - (iv) tighter global financial conditions; - (v) lower global demand for US assets. - Staff’s Quarterly Projection Model (QPM) analysis of the combined shocks: - At its peak, the output gap is reduced by 1.5 percent relative to the baseline, driven by tighter financial conditions and weaker exports. - Higher sovereign and corporate yields would weigh on public finance and private investment. - The shock would impact corporates in trade-oriented sectors, and the banking system could face higher NPLs. - The first two layers in isolation may reduce room for easing monetary policy given their persistent nature and impact on inflation expectations amid a growth slowdown. - The downside scenario with all shocks combined is expected to have a small negative impact on inflation and a modest reduction in the policy rate. - Monetary policy specification in staff’s QPM: Taylor rule with 0.3 and 2.5 as the coefficients for the output gap and 3-quarters ahead inflation respectively. - Policy guidance under the scenario: - Given the sizeable output gap, there is room for monetary policy to be more accommodative relative to what is suggested in the scenario. - Available fiscal space suggests letting automatic stabilizers work on the revenue side, providing targeted and temporary support for the most vulnerable, and adjusting the composition of spending to support the economy (e.g., increasing infrastructure investment). - With debt projected to rise above the authorities’ medium-term target, authorities should reinitiate fiscal consolidation once shocks subside to enhance fiscal space and preserve credibility. - In the event of capital outflows, the exchange rate should act as a shock absorber with FXI used on a temporary basis to address disorderly market conditions. - Authorities concurred with the overall implications of the downside scenario and noted the importance of the rest-of-world policy response in assessing impact; they are increasing use of scenario analyses in policy deliberations and public communications. ### Structural policies to boost growth and resilience - Investment and productivity-enhancing reforms needed to accelerate inclusive growth, diversify the economy, and boost resilience. - Recent legislative reforms aim to improve the business environment and boost digitalization; effective implementation is key. - Recommendations to raise efficiency of public expenditure and governance: - Strengthen public financial management by improving (i) data quality, timeliness, and comprehensiveness; (ii) capital project appraisal and monitoring; (iii) transparency and analysis of procurement data supported by digitalization; (iv) independent ex-post audits—particularly of investment projects—with creation of an independent review board for procurement complaints. - Integrate the Digital Information for Monitoring and Evaluation (DIME) with core PFM systems to improve reporting. - Strengthen contract enforcement and property rights. - Climate resilience and energy security: - Ensure investments in agriculture, connectivity, and energy infrastructure are resilient to climate change while facilitating renewable energy investments by improving transmission and distribution capacity, reducing delays in land acquisition, and strengthening financing mechanisms. - Measures complement initiatives such as the National Insurance Indemnity Program for strategically important government assets and the parametric insurance program for agriculture crops affected by extreme weather events. - Human capital and technology: - Invest in education and adaptive social protection to enhance workforce productivity and address skills shortages, including for AI complementarity in sectors like business process outsourcing. - Facilitate land consolidation in agriculture to enhance productivity and attract investment. - Trade integration: - Greater trade integration is important to raise productivity and pivot to a more diversified growth model. - The Philippines is enhancing trade relationships (e.g., with ASEAN and the EU) and has applied for CPTPP. - Deep trade agreements can boost global value chain integration but require lowering non-tariff barriers, reducing restrictive services regulation, streamlining customs procedures, and revising uncompetitive procurement rules. - Authorities’ emphasis: - Further reforms to boost private investment and improve governance are needed; effective and timely implementation of passed legislative reforms is crucial. - Authorities plan to expand job facilitation programs, upskill the labor force, and continue investments in health and education. - Commitments to finalize updated Nationally Determined Contributions (NDC) focused on reducing greenhouse gas emissions, increasing food and energy security, and alleviating poverty. - Continued commitment to concluding trade negotiations (EU and Chile), beginning negotiations with Canada, and fast-tracking CPTPP application. ### Staff appraisal: macro outlook and policy stance - Authorities have handled multiple external headwinds well; growth resilient due to public spending and private consumption despite global trade policy uncertainty and weather-related disruptions. - Inflation has declined to below the BSP’s target range following monetary policy tightening and government measures to reduce food prices. - The 2024 external sector position is assessed to be weaker than the level implied by fundamentals and desirable policies. - Outlook: - Growth expected to moderate in 2025 before picking up over the medium-term. - Inflation expected to gradually increase towards the mid-point of the BSP’s target range. - Inflation projected to rise to 2.8 percent in 2026 and increase towards the midpoint of the BSP’s target band over the medium term. - Current account deficit projected to improve modestly. - Risks to the growth outlook are tilted to the downside; risks around inflation are broadly balanced. - Fiscal policy: - A more gradual pace of fiscal consolidation, in line with authorities’ plans, is appropriate but should be supported by concrete tax measures and PFM reforms. - Consider implementing concrete and durable tax measures to limit the need for restraint in priority spending. - Gradual fiscal consolidation over the medium term will help reinforce fiscal space and support external balance. - Strengthen budget credibility and public investment by enhancing PFM, including investment planning, project appraisal, selection, management, and procurement to enhance accountability and reduce corruption vulnerabilities. - Monetary policy: - Projected accommodative stance is appropriate given favorable inflation outlook and elevated downside risks to growth. - With headline inflation below the midpoint of the target band, expectations anchored, and an emerging negative output gap in 2025, further policy rate cuts are warranted. - The BSP has appropriately allowed the exchange rate to function as a shock absorber amid rising global volatility and should continue to do so. - Continue efforts to enhance capital markets and monetary policy transmission. *PHILIPPINES — INTERNATIONAL MONETARY FUND* ### 44. Overall systemic financial risks remain moderate with pockets of vulnerabilities. The ### 1phlea2025001-source-pdf - 44. Overall systemic financial risks remain moderate with pockets of vulnerabilities. ### Financial sector stability: current assessment and vulnerabilities - Overall systemic financial risks remain moderate with pockets of vulnerabilities. - Banking system strengths: - Sufficient liquidity and capital buffers. - Nonperforming loans (NPLs) remain low. - Credit growth is healthy. - Vulnerabilities and areas warranting close monitoring: - Parts of the commercial and residential real estate sector have seen persistently high vacancies. - Rapid growth in consumer loans, including through NBFIs and digital finance, warrants close monitoring. - Loans to the manufacturing sector could be affected by adverse global trade developments. - Data gaps related to conglomerates and NBFIs should continue to be closed. - Policy actions recommended or ongoing: - The BSP should accelerate efforts to refine macroprudential policy and the CCyB framework. - Progress to strengthen crisis management and resolution, and financial oversight, should continue. - Efforts to advance AML/CFT, especially in the areas of supervision, CFT, and risk assessment, should remain a priority. ### Structural reforms, growth, and resilience priorities - Accelerating inclusive growth, increasing productivity and competitiveness, and boosting resilience will require continued reform effort. - Areas for reform and investment: - Closing gaps in connectivity infrastructure, energy, and climate resilience. - Strengthening governance and human capital. - Reducing skill mismatches. - Streamlining complex regulations. - Accelerating and diversifying bilateral and multilateral trade agreements. - Reducing non-tariff barriers. ### IMF engagement - It is expected that the next Article IV consultation will take place on the standard 12-month cycle. ### Selected macrofinancial indicators and projections (excerpted) - Real GDP growth (percent change): - 2023: 5.5 - 2024: 5.7 - 2025 (Proj.): 5.4 - 2026 (Proj.): 5.8 - 2027 (Proj.): 6.1 - 2028 (Proj.): 6.0 - Consumer prices (period average, percent change): - 2023: 6.0 - 2024: 3.2 - 2025 (Proj.): 1.7 - 2026 (Proj.): 2.8 - 2027 (Proj.): 3.0 - 2028 (Proj.): 3.0 - Current account balance (in percent of GDP): - 2023: -2.8 - 2024: -4.0 - 2025 (Proj.): -3.8 - 2026 (Proj.): -3.4 - 2027 (Proj.): -3.1 - 2028 (Proj.): -2.9 - Gross reserves (US$ billions, end of period): - 2023: 103.8 - 2024: 106.3 - 2025 (Proj.): 107.3 - 2026 (Proj.): 106.5 - 2027 (Proj.): 105.0 - 2028 (Proj.): 103.3 - National government overall balance (in percent of GDP): - 2023: -6.1 - 2024: -5.7 - 2025 (Proj.): -5.4 - 2026 (Proj.): -5.2 - 2027 (Proj.): -4.7 - 2028 (Proj.): -4.2 - National government gross debt (in percent of GDP): - 2023: 60.1 - 2024: 60.7 - 2025 (Proj.): 62.2 - 2026 (Proj.): 62.7 - 2027 (Proj.): 62.5 - 2028 (Proj.): 61.8 ### Financial soundness indicators (selected, in percent) - Regulatory capital to risk-weighted assets: - 2020: 16.3 - 2021: 16.5 - 2022: 15.3 - 2023: 16.3 - 2024: 15.8 - 2025:Q2: 15.7 - Nonperforming loans to total gross loans: - 2020: 3.5 - 2021: 4.0 - 2022: 3.1 - 2023: 3.2 - 2024: 3.2 - 2025:Q2: 3.3 - Return on assets: - 2020: 1.1 - 2021: 1.4 - 2022: 2.1 - 2023: 1.7 - 2024: 1.7 - 2025:Q2: 1.7 - Liquid assets to total assets: - 2020: 35.3 - 2021: 31.6 - 2022: 29.8 - 2023: 29.7 - 2024: 28.8 - 2025:Q2: 26.6 - Residential real estate loans to total loans: - 2020: 8.0 - 2021: 8.2 - 2022: 7.8 - 2023: 7.5 - 2024: 7.4 - 2025:Q2: 7.6 - Commercial real estate loans to total loans: - 2020: 14.0 - 2021: 14.3 - 2022: 13.5 - 2023: 13.1 - 2024: 12.6 - 2025:Q2: 12.3 *Source: IMF staff compilation from the cited IMF country report content.* ### Annex I. Implementation of Main Recommendations of the ### Annex I. Implementation of Main Recommendations of the 2024 Article IV Consultation ### Monetary Policy - Recommendation: The BSP has room to gradually reduce the policy rate while ensuring inflation and inflation expectations remain well-anchored, amid upside risks and possible second-round effects from supply-side shocks. - Recommendation: Continue to allow the exchange rate to act as a shock absorber. - Recommendation: Ensure careful communication, including on the size of the BSP’s balance sheet, and expand use of forward guidance, and continue coordination with the Bureau of Treasury to further develop the benchmark yield curve. - Actions since 2024 Article IV Consultation: - The BSP lowered its policy rate by 100 bps from January 2025 to 4.75 percent as of October 10, in line with staff recommendations. - The value of the peso has fluctuated amid global uncertainty and trade tensions. While the BSP intervened in 2024Q4, the intervention was limited in scope and time. - Efforts underway to develop the yield curve include: - Launch of a new interest rate swap market in November 2024. - Consolidation of bond issuances. - Streamlining implementation of existing tax treaties. - Publication of the first Medium Term Debt Strategy. - Adoption of the Global Master Repurchase Agreement for BSP facilities to support monetary policy transmission and capital market deepening. ### Financial Sector Policies - Recommendation: Continue to strengthen financial supervision and regulation. - Recommendation: Be ready to adjust macroprudential policy, in line with developments in the financial cycle, to preempt the build-up of vulnerabilities, and move toward a positive neutral level for the countercyclical capital buffer (CCyB). - Recommendation: Strengthen the capacity to assess financial stability risks and revolve troubled financial institutions. - Recommendation: Sustain reforms to enhance AML/CFT effectiveness. - Actions since 2024 Article IV Consultation: - BSP is developing an integrated systemic risk management framework covering governance, macroprudential supervision, surveillance tools, and crisis management. - BSP continues engagement with IMF TA on macroprudential policy and the CCyB framework, including considering moving towards a positive neutral level for CCyB. - Monetary Board approved the scope and principles of the LOLR Framework (covering ELA) in June 2025. - BSP is updating the LOLR framework, developing a resolution manual and legislative protocols on resolution, and establishing a dedicated resolution group. - The Philippines exited from the FATF grey list in February 2025; and was removed from the EU’s list of high-risk jurisdictions for money laundering and terrorism financing in June 2025. - Philippines is developing National Risk Assessment and strategy on anti-money laundering, counter-terrorism financing and counter-proliferation financing. ### Fiscal Policy - Recommendation: Fiscal consolidation should continue over the medium term to replenish fiscal space. - Recommendation: Prioritize tax reforms on implementing previously planned excise tax measures, enhancing VAT efficiency, improving tax administration, and ensuring effective control of tax incentives. - Recommendation: Focus efforts on reforming the MUP pension system, improving expenditure efficiency, managing the process of decentralization, and effectively managing fiscal risks. - Actions since 2024 Article IV Consultation: - The updated MTFF plans to reduce the fiscal deficit to 4.3 percent of GDP in 2028 (instead of 3.7 percent of GDP in last year’s approved DBCC fiscal program and 3.0 percent of GDP in the original MTFF). The deficit target for 2030 is set at 3.1 percent. - Key tax reforms enacted include: VAT on digital services, CREATE More, enhanced fiscal regime for large-scale mining, and the Capital Markets Efficiency Promotion Act. - Authorities continue to engage with IMF TA on improving VAT efficiency, stocktaking the size of tax expenditure, and enhancing tax administration. - Authorities engaged with IMF TAs to review budget preparation in the context of digitalization; underwent the Public Investment Management Assessment (PIMA) update and Climate PIMA. - Implementing Rules and Regulations of the new Government Procurement Act published in February 2025; government supporting procuring entities and stakeholders for implementation. - Government Optimization Bill (previously National Rightsizing Program) signed into law in August 2025. - No developments in reforming the MUP pension system. ### Structural Policies - Recommendation: Sustain efforts to reduce infrastructure, health, and education gaps, promote foreign investment, boost productivity, strengthen governance, and harness the digital economy and demographic dividend to boost potential growth. - Recommendation: Policies should remain focused on reducing poverty levels and addressing inequality through creating quality jobs, educational attainment, and enhancing social protection programs. - Recommendation: Address climate risks through a multi-pronged approach. - Actions since 2024 Article IV Consultation: - Authorities target a 5-6 percent infrastructure disbursements-to-GDP ratio every year by implementing flagship projects, including through PPPs. - Business-friendly administrative reforms enacted: CREATE MORE Act, New Government Procurement Act, e-Governance Act, rationalization of Mining Fiscal Regime, Accelerated and Reformed Right-of-Way Act, amendments to the Investors’ Lease Act. - Konektadong Pinoy Act supports expanding internet access; E-Governance Act supports digitalization. - Workforce development reforms passed into law: Enterprise-Based Education and Training Framework Act, Expanded Tertiary Education Equivalency and Accreditation Act, Lifelong Learning Development Framework Act. - Authorities published in 2024 their National Adaptation Plan and NDC Implementation Plan. --- ### Annex II. External Sector Assessment — Key Findings and Metrics - Overall assessment: The Philippines’ external position in 2024 was weaker than the level implied by fundamentals and desirable policies. Continued exchange rate flexibility, fiscal consolidation, and structural policies to raise productivity should help reduce the current account (CA) deficit towards its norm in the medium- to long-term. Foreign Asset and Liability Position - NIIP widened to -14.2 percent of GDP in 2024 from -11.6 percent of GDP in 2023. This reduction is explained by a widening in the current account deficit and peso depreciation. - Foreign reserves held by the BSP accounted for about 42 percent of total external assets in 2024, a slight decline from 43 percent in 2023. - Key components of external liabilities in the NIIP: FDI (28 percent of GDP), portfolio investment (19.1 percent of GDP) and other investment (19.5 percent of GDP). - Total external debt increased to 29.8 percent of GDP in 2024 from 28.7 percent of GDP in 2023, driven almost equally by a rise in public and private debt. - Assessment: Composition of NIIP and relatively low external debt indicate sustainability and relatively low vulnerabilities. FX reserves substantially larger than short-term external liabilities (29.0 percent of FX reserves). FDI accounts for 41.8 percent of total liabilities. Current Account - CA deficit widened to 4.0 percent of GDP in 2024 from 2.8 percent of GDP in 2023. - Deterioration reflects a decline in goods exports and a rise in services imports. - From a saving-investment (S-I) perspective, deterioration driven by a rise in public investment and a decline in private saving, despite a rise in public saving. - The CA deficit is expected to remain at -3.8 percent of GDP in 2025, supported by lower commodity prices. - Assessment: External position in 2024 weaker than level implied by medium-term fundamentals and desirable policies. - EBA model estimates: cyclically adjusted CA of −3.7 percent and a CA norm of -0.9 percent of GDP in 2024. - Staff estimates a CA gap of -2.8 percent of GDP for 2024, of which -0.6 percent is attributed to policy gaps (primarily looser than warranted domestic fiscal policy and a global credit gap). - Staff’s estimated CA gap increased relative to 2023 (-1.0 percent of GDP in 2023). Real Exchange Rate - The peso appreciated by 0.5 percent in real effective terms in 2024. - Assessment: Staff CA gap estimate of -2.8 percent of GDP implies a REER gap of 9.0 percent (applying an estimated elasticity of 0.31). The REER level model points to a 2024 REER gap of 15.6 percent. Capital and Financial Accounts - Net financial inflows increased to 4.4 percent of GDP in 2024 from 3.1 percent of GDP in 2023. - Net Direct Investment inflows rose slightly to 1.4 percent of GDP in 2024 from 1.2 percent of GDP in 2023. - Portfolio flows recorded a net inflow of 1.0 percent of GDP in 2024 from a net outflow of 0.8 percent of GDP in 2023, driven by: - Decline in equity and investment fund share outflows. - Rise in inflows to government debt securities (ex-central bank) equal to 1.1 percent of GDP in 2024 compared to 0.4 percent of GDP in 2023. - Assessment: As a small open economy, the Philippines is exposed to cross-border capital flow volatility; expectations and global risk appetite have outsized influence on capital flows. FX Intervention and Reserves Level - De facto exchange rate arrangement: floating. The peso determined in the interbank foreign exchange market. BSP intervenes in spot and forward markets to smooth excessive exchange rate volatility. Intervention data is not published. - The peso depreciated by 3.0 percent in 2024, with measures of volatility peaking in Q4 amid a widening in the balance of payments deficit. - Gross international reserves (GIR) increased to US$106.3 billion in 2024 (23.0 percent of GDP) from US$103.8 billion at end-2023. - Assessment: Reserves are adequate. Reserves as of end-2024 were about 7.3 months of imports of goods and services, or about 200 percent of the IMF’s reserve adequacy metric. ### Annex III. Risk Assessment Matrix — Selected Risks, Likelihood, Expected Impact, and Policy Recommendations - Geopolitical Tensions - Likelihood: High - Expected Impact: Medium - Policy Recommendations: - Use available fiscal space effectively to provide targeted support to the vulnerable population. - Stand ready to delay policy cuts as needed if inflation expectations show signs of increasing and second round effects are emerging. - Accelerate trade integration within ASEAN and pursue new, high-quality regional trade agreements. - Implement structural reforms to reduce trade costs, promote competition and financial deepening. - Further progress on open trade policy (including lifting non-tariff barriers) and diversification of FDI source countries. - Escalating Trade Measures and Prolonged Uncertainty - Likelihood: High - Expected Impact: High - Policy Recommendations: - Monetary policy can be eased further to help mitigate the impact on domestic demand. - Use available fiscal space effectively to provide targeted support to the vulnerable population. - Financial sector policies should provide targeted support to viable firms, while facilitating the exit of unviable ones. - Financial Market Volatility and Correction - Likelihood: High - Expected Impact: Medium - Policy Recommendations: - Ensure the financial sector remains healthy and markets remain liquid. - Exchange rate should remain flexible and market driven, but FXI can be considered to address sharp increases in the risk premium and disorderly market conditions. - Commodity Price Volatility - Likelihood: High - Expected Impact: Medium - Policy Recommendations: - Stand ready to delay policy cuts as needed if inflation expectations show signs of rising and second round effects are emerging. - Avoid subsidies and lowering taxes; provide targeted transfers to low-income households. - Fiscal Vulnerabilities and Higher Long-Term Interest Rates - Likelihood: High - Expected Impact: Medium - Policy Recommendations: - Implement monetary policy considering both higher global long-term interest rates and domestic factors such as inflation and the output gap. - Provided monetary policy stance remains adequate to address inflation risks, use of FXI may be appropriate under certain circumstances. - Domestic Reform Momentum Stalls - Likelihood: Medium - Expected Impact: Medium - Policy Recommendation: - Continue priority reforms, including opening the economy, business sector reforms, and improving governance. - Accelerated Implementation of Reforms - Likelihood: Medium - Expected Impact: Medium - Policy Recommendation: - Continue priority reforms and careful selection and sequencing of projects to support development objectives while minimizing fiscal risks and contingent liabilities. - Natural Disasters - Likelihood: High - Expected Impact: High - Policy Recommendations: - Monetary policy should balance inflationary pressures and the decrease in economic activity from lower labor productivity and capital destruction. - Provide targeted fiscal assistance to affected groups and sectors. - If the economy slows significantly, provide relief to banks in affected regions while monitoring credit risk. - Prioritize public investment in disaster-resistant infrastructure and sustainable growth. *Source: Annexes I–III, 2024 Article IV Consultation implementation and assessments (selected excerpts).* ### Annex IV. Sovereign Risk and Debt Sustainability Assessment ### Annex IV. Sovereign Risk and Debt Sustainability Assessment ### Overall risk assessment - Final assessment: Overall risk of sovereign stress — Low. - Horizon assessments: - Near term: 1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published. - Medium term: Low. "Medium-term risks are assessed as "low", as the stress probability is very close to the mechanical threshold for low risk." - Long term: Moderate. - Key contextual points: - The risk of sovereign stress is a broader concept than debt sustainability; unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). - A sovereign can face stress without its debt necessarily being unsustainable; remedial measures may include fiscal adjustment and new financing. - The Bond Sinking Fund helps to reduce refinancing risk. ### DSA summary assessment and baseline dynamics - Commentary summary: - "The Philippines is at a "low" overall risk of sovereign stress and debt." - "Most indicators have started to normalize as the recovery from the COVID-19 shock has proceeded." - Public debt trajectory: - "Public debt is expected to gradually decline to about 60 percent of GDP over the medium-term, driven mainly by a favorable interest-growth differential." - Debt coverage and realism: - "Debt coverage at the national level is appropriate, as local government units and social security institutions have surpluses." - "The realism tools suggest projections of key debt drivers are within norms." - Risk management: - "Medium-term solvency and liquidity risks are manageable, but fiscal consolidation remains important to reduce the gross financing needs." - "Over the longer run, structural reforms to boost growth potential and tackle risks from climate change should continue." - Long-term risks: - "Long-term risks are moderate as the increase in gross financing due to the pandemic as well as climate spending feed into debt dynamics, which will increase debt and GFN without policy actions." ### Debt coverage and disclosure (DSA specifics) - Coverage chosen in this SRDSA: national government debt. - Specific figures and coverage notes: - Debt held by the Bond Sinking Fund: 2.8 percent of GDP at end-2024. - Intra-sector bond holding: 4.9 percent of GDP at end-2024. - "Total consolidated general government debt was 53.9 percent of GDP at end-2024, about 6.8 percentage points of GDP lower than the national government debt." - Subsector inclusion in baseline (as stated): - Budgetary central government — Yes - Extra budgetary funds (EBFs) — No - Social security funds (SSFs) — No - State governments — No - Local governments — No - Public nonfinancial corporations — No - Central bank — No - Other public financial corporations — No - Notes on DSA mechanics: - "A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ("with high probability" or "but not with high probability") is deleted before publication." ### Public debt structure, risks, and realism checks - Debt stabilization in the baseline: Yes (Debt stabilization in the baseline; Source: Fund staff). - Realism tools: "The realism tools suggest projections of key debt drivers are within norms." - Medium-term summary: "Medium-term risks are assessed as "low", as the stress probability is very close to the mechanical threshold for low risk. In addition, the Bond Sinking Fund helps to reduce refinancing risk." - Long-term summary: "Long-term risks are moderate as the increase in gross financing due to the pandemic as well as climate spending feed into debt dynamics, which will increase debt and GFN without policy actions." ### Key statistics and numeric facts (preserved exactly as in source) - Bond Sinking Fund holdings: 2.8 percent of GDP (end-2024). - Intra-sector bond holding: 4.9 percent of GDP (end-2024). - Total consolidated general government debt: 53.9 percent of GDP (end-2024). - Difference between consolidated general government debt and national government debt: about 6.8 percentage points of GDP lower. - Public debt trajectory projection: "gradually decline to about 60 percent of GDP over the medium-term." ### Policy implications and recommendations (as reflected in the assessment) - Fiscal policy: - Pursue fiscal consolidation to reduce gross financing needs. - Continue to rebuild policy buffers over the medium term. - Structural policies: - Implement structural reforms to boost growth potential. - Tackle risks from climate change to mitigate long-term debt pressures. - Debt and liquidity management: - Continue to leverage the Bond Sinking Fund and other measures to reduce refinancing risk. - Strengthen debt management tools to address pandemic-related increases in gross financing needs and climate-related spending pressures. *Source: Annex IV. Sovereign Risk and Debt Sustainability Assessment — Fund staff (figures and text as provided).* ### Annex VI. Data Issues ### Annex VI. Data Issues ### Data Adequacy Assessment — key ratings - Median Rating: BBBBBBB - Data Adequacy Assessment Rating (overall): B - Granularity: B - Data Quality Characteristics (selected cells shown in heatmap): - Coverage: BBBBA - Consistency: BBB - Frequency and Timeliness: AAAAB - National Accounts: BBB - Prices: B - Government Finance Statistics: BABB - External Sector Statistics: AA - Monetary and Financial Statistics: A - Inter-sectoral Consistency: B ### Findings used in surveillance and staff adjustments - Use of data and/or estimates in Article IV consultations in lieu of official statistics available to staff: - Staff use fiscal data to estimate the size of public investment and back out private gross fixed investment in the real sector statistics. - The data provided to the Fund: - "have some shortcomings that somewhat hamper surveillance." - "have serious shortcomings that significantly hamper surveillance." (statement included in source heatmap legend) ### Other data gaps (explicit) - Limited coverage of the informal/illegal economy and linkage within and between conglomerates. - Possible update of the Informal Sector Survey from PSA; the latest survey was in 2008. - Distinction between private and public gross fixed investment is not readily available. - Coverage of general government spending is affected by the lack of data for the barangays. - Need for improved accuracy in quarterly central bank assets and liabilities statistics due to infrequent reporting frequency. ### Changes since the last Article IV consultation - Authorities finalized identifying market and nonmarket GOCCs pending a PSA Board endorsement to implement, with GOCCs' financial statements ready to be translated and to be included in the general government and wider macroeconomic statistics including the balance sheet approach. - Authorities are aligning official debt publications to: - present external debt based on jurisdiction of holder, and - include domestic debt across the board. - Work underway to: - improve the accuracy of quarterly GDP data; - improve the coverage of the public corporation sector; - adopt benchmark technique to reconcile quarterly and annual national account estimates; - develop high-frequency indicators of economic activities. - PSA is working to expand PPI coverage to include service sector. - BSP has published an updated Residential Property Price Index (RPPI) which replaces the existing RREPI; the RPPI was developed with the support of IMF TA and is of significantly higher quality. ### Corrective actions and capacity development priorities - Technical assistance (TA) has shown that using annual financial statements data could help resolve: - Barangay data gap, and - financial transactions data, - while improving the basis of recording from cash to accrual. - Using financial statements can also improve national government data by moving from cash to accrual. - Efforts underway to draft implementing rules and regulations for collection and publication of data on climate and the blue economy. - After a successful pilot phase, work is underway to complete disaggregated GDP measures to include provincial disaggregates. - Plans are underway to rebase GDP to 2023 in the coming years. - BSP has requested IMF TA for support in updating the Commercial Property Price Index. - BSP is working (with IMF TA) to improve consistency between: - the International Investment Position (IIP) and the Balance of Payments (BOP), - the External Debt Statistics (EDS), - the Monetary and Financial Statistics (MFS), - and the IMF’s Coordinated Direct Investment Survey (CDIS) and Coordinated Portfolio Investment Survey (CPIS). ### Rationale for staff assessment - Data provision is broadly adequate for surveillance with some shortcomings in real, external sector, fiscal, and monetary statistics. - Real sector shortcomings: - limited coverage of the informal/illegal economy; - distinction between private and public gross fixed investment not readily available. - External sector shortcomings: - coverage and consistency issues across datasets, most notably direct investment equity and debt, and portfolio debt securities. - Fiscal shortcomings: - limited coverage of general government (including ongoing work to include the nonmarket GOCCs) is the main reason for maintaining the overall GFS rating of "B". - Statistical reconciliation shortcomings: - need to improve techniques to allow nonfinancial transactions to reconcile accurately with financial transactions and the balance sheet to show stock-flow reconciliations. - Monetary statistics shortcomings: - Infrequent reporting frequency of the monthly central bank assets and liabilities statistics can lead to inaccurate assessment of the risks. *Source: Annex VI. Data Issues (from the provided IMF content).* ### Section 6 of the AFASA; (ii) Circular No 1214, Series of 2025 ### Section 6 of the AFASA; (ii) Circular No 1214, Series of 2025 ### Financial conglomerate powers and information access - Provide the power to the BSP to insert a regulated Financial Holding Company into a mixed conglomerate and obtain information from the wider group (BSP, DOF). - Update: The BSP is conducting a study on the potential structure of a proposed financial conglomerate model. - Regarding the power to obtain information from the wider group, pursuant to Section 3 of Republic Act No. 7653 or the New Central Bank Act, as amended, the BSP shall likewise exercise regulatory and examination powers over credit granting businesses, as may be determined by the Monetary Board. - Relevant issuances cited: - Circular No. 1214, Series of 2025 (BSP). - Memorandum to All BSFIs No. M-2024-029 dated September 19, 2024 reiterating the Guidelines on Risk Management Systems and Controls to Protect Financial Accounts in Relation to Section 6 of the AFASA. *Source: Section 6 of the AFASA; Circular No. 1214, Series of 2025 (BSP) and related BSP Memorandum.* ### AML/CFT legislative and supervisory recommendations - Make legislative amendments to (i) designate tax crimes as predicate ML offenses and (ii) establish a comprehensive legal framework for targeted financial sanctions against proliferation financing (AMLC, DoF). - Timetable: ST - Update: The authorities consider this recommendation addressed; see the 2023 Article IV staff report. - Strengthen risk-based AML/CFT supervision (including sanctioning procedures) for high-risk sectors, such as banks, casinos, money value transfer service providers (BSP, AMLC, PAGCOR). - Timetable: ST - Update: - The AMLC is leading the National Risk Assessment (NRA) to provide updated, evidence-based understanding of money laundering and terrorism financing threats and vulnerabilities. - Competent authorities (BSP, SEC, IC, PAGCOR, CEZA, AMLC) continue to enhance risk-based supervision: refining sectoral risk profiling methodologies, issuing updated compliance guidance, and conducting regular examinations. - AMLC participated in an ad hoc compliance examination of land-based casinos with junket operations (with PAGCOR), focusing on fitness and propriety screening, KYC, transaction monitoring effectiveness, and recordkeeping/safekeeping. - Coordination meetings produced actionable items/summary agreements addressing Unregulated Virtual Asset Service Providers and Unlicensed Entities. - Enhance the accuracy and availability of beneficial ownership information of companies (SEC). - Timetable: MT - Update: - The SEC introduced the Swift Corporate Records and Other Documents Exchange (SCORE) Protocol with the Bureau of Internal Revenue: a web portal facility enabling requests and delivery of corporate documents to partner regulatory and enforcement agencies within 24 hours. - A new BO system is being developed through SEC’s partnership with the Asian Development Bank: the Hierarchical and Applicable Relations and Beneficial Ownership Registry (HARBOR) to improve BO tracking, enhance law enforcement collaboration, and ensure real-time compliance and data access. *Source: FSAP Authorities’ Updates on Key Recommendations — AML/CFT (Philippines).* ### Crisis management, resolution, and safety net - Ensure timely corrective actions and resolution of weak banks (BSP, PDIC). - Timetable: ST - Update: - The PCA Framework under BSP Circular No. 523 dated 23 March 2006, as codified in Section 003 and Appendix 68 of the MORB, is under revision to realign focus on timely restoration of banks’ capital to regulatory minima. - The revised framework will require submission of a capital restoration plan within six months, complemented by activation of recovery options under banks’ Recovery Plans to address underlying causes of capital impairment. - Completion of the amendments is targeted by Q2 2026. - The FSS issued Supervision Guidelines No. 01 dated June 23, 2025 to define when a bank is considered no longer viable or likely to become non-viable and to provide direction on Point of Non-Viability (PONV) triggers for supervisory assessments and interventions. - Implement resolvability assessments and resolution plans, starting with D-SIBs (PDIC, BSP). - Timetable: ST - Update: The BSP is advancing development of guidelines on resolvability assessment and resolution planning. - Make the legal framework for ELA more specific regarding the conditions under which it can be provided and avoid assistance without collateral (BSP). - Timetable: ST - Updates: On June 19, 2025, the Monetary Board approved the scope and principles for updating BSP’s LOLR Framework, covering ELA. The LOLR Framework Committee is currently updating the LOLR framework. - Designate and provide the PDIC with powers to act as resolution authority (PDIC, BSP, DoF). - Timetable: MT - Update: - The PDIC’s resolution function was removed through its 2022 Charter amendment to allow PDIC to focus on deposit insurer and liquidator mandates, effectively centralizing the resolution function with the BSP. - In the absence of PDIC’s formal designation as resolution authority, the BSP will continue to exercise the contemplated resolution functions in conjunction with supervisory responsibilities and its role as lender of last resort. - Expand and operationalize bank resolution tools (particularly P&A) beyond liquidation (PDIC, BSP). - Timetable: MT - Update: - The BSP has identified existing key supervisory intervention and resolution tools and is examining legal parameters and authorities conferred by the 1987 Philippine Constitution, RA No. 7653 (as amended), RA No. 8791, and other laws to further strengthen crisis management and resolution capacity. - The BSP is advancing the development of a comprehensive Resolution Manual grounded in existing laws and regulations to serve as a structured reference for resolving banks. *Source: FSAP Authorities’ Updates on Key Recommendations — Crisis Management, Resolution, and Safety Net (Philippines).* ### Climate change, environmental risks, and supervision - Improve information collection, monitoring of risk metrics, and stress test capacity for climate change and environmental risks (BSP). - Timetable: MT - Update: - The BSP, in coordination with the Bankers Association of the Philippines-Risk Management Committee and the World Bank, conducted workshops for banks on climate risk stress testing. - A climate scenario exercise will be conducted using a bottom-up approach: banks will run the exercise following a climate scenario to be provided by the BSP to determine the impact on capital, non-performing loans, and loan loss provisioning. - The BSP-ESG Supervision and Surveillance Group is exploring tools and methodologies to enhance internal stress testing frameworks to embed climate risk factors. - The BSP will enhance prudential reports to collect relevant data for surveillance and analysis of emerging risks/trends from climate change and other environmental and social factors; currently taking stock of available data in prudential reports to assess the banking sector’s climate risk exposure and conducting research to identify additional variables needed for climate risk analysis. - The BSP intends to update existing sustainability disclosure requirements in line with adoption of IFRS-International Sustainability Standards Board (ISSB) by banks; once issued, bank sustainability disclosures may be used to monitor and assess ESG risks. *Source: FSAP Authorities’ Updates on Key Recommendations — Climate Change, Environment Risks and Supervision (Philippines).* ### IMF staff statement and macroeconomic outlook (November 24, 2025) - Recent data and Q3 2025 outturns: - National accounts data released on November 7, 2025 point to a sharper than expected slowdown in 2025Q3. - Real GDP growth for 2025Q3 was 4.0 percent year-on-year (staff projection 4.7 percent, consensus 5.5 percent). - Growth drivers: weaker-than-anticipated growth in gross fixed capital formation and private consumption; all three major sectors had weaker than expected growth. - Gross fixed capital formation grew by 0.1 percent year-over-year, primarily due to a sharp decline in public construction amid corruption allegations related to flood-control infrastructure projects. - Multiple severe typhoons, including super typhoon Nando/Ragasa on September 17-25, and Typhoon Tino/Kalmaegi and Super Typhoon Uwan/Fung-wong in early November, further weighed on growth and impacted agricultural output, transport, and construction activity. - A pickup in exports helped offset some decline in other sectors. - Policy advice and projections: - The Q3 outturn implies a downward revision to staff’s growth projections for 2025 (from 5.4 to 5.1 percent) and carries modest effects into 2026 (revised down from 5.8 to 5.6 percent). - Inflation is expected to remain broadly unchanged, reflecting offsetting impacts of supply-side shocks from weather disturbances and lower domestic demand. - Staff’s policy advice remains unchanged: an accommodative monetary policy stance is appropriate amid a favorable inflation outlook and elevated downside risks to growth. - For fiscal policy, staff continues to recommend a more gradual pace of fiscal consolidation and a broadly neutral stance in 2026. - The revised outlook is subject to downside risks given a more severe than earlier projected typhoon season; coverage of the impact of typhoons on the economy and policy response in the Staff Report provide relevant policy advice. *Source: IMF Staff Statement (November 24, 2025) and Staff Report references contained therein.* *Prepared from: Section 6 of the AFASA; Circular No. 1214, Series of 2025; Memorandum M-2024-029; FSAP Authorities’ Updates; IMF staff statements and informational annex material.* ### 4.0 percent in Q3 2025 reflecting the adverse impact of an unusually high number of typhoons and ### 1phlea2025001-source-pdf - 4.0 percent in Q3 2025 reflecting the adverse impact of an unusually high number of typhoons and ### Macroeconomic outlook and recent developments - Real GDP growth slowed to 4.0 percent in Q3 2025 reflecting the adverse impact of an unusually high number of typhoons and delays in public infrastructure spending due to efforts to enhance spending quality. - Authorities mobilized emergency funds for social protection, financial assistance, and infrastructure rehabilitation in disaster-affected areas. - Targeted disbursements are being accelerated in Q4 2025 and into 2026 as part of a catch-up plan. - Authorities consider the economic slowdown in Q3 2025 to be temporary, with a recovery expected in 2026. - Macroeconomic fundamentals highlighted as strong: - Inflation averaged 1.7 percent in January to October 2025. - Fiscal deficit stood at ₱1.1 trillion as of September 2025, within the ₱1.6 trillion target for the year. - Gross International Reserves reached US$109.7 billion as of end-October 2025, equivalent to 7.3 months of imports and 3.7 times short-term external debt. - Bank assets increased by 7.5 percent YoY to ₱28.8 trillion as of September 2025. - Bank loans expanded by 9.1 percent to ₱16.3 trillion as of September 2025. - Philippine peso supported by resilient remittances and steady foreign exchange inflows from business process outsourcing and tourism. - Credit quality described as satisfactory, with robust capital and liquidity positions. - Main risk sources: global trade policy uncertainty and geopolitical conditions; domestic vulnerabilities from natural disasters and weaker investor sentiment. - Medium-term macroeconomic forecasts and fiscal targets to be reviewed in December 2025. - Policy intent: preserve macroeconomic resilience through sound macroeconomic and structural policies guided by the Philippine Development Plan (PDP) 2023 to 2028. ### Fiscal Policy - Strategy: measured fiscal consolidation anchored in the Medium-Term Fiscal Framework to preserve fiscal space for strategic investments. - Fiscal deficit targets: - 5.5 percent of GDP in 2025 (targeted to narrow from this level) - 4.3 percent by 2028 - 3.1 percent by 2030 - Infrastructure investment commitment: maintain at a minimum of 5.0 percent of GDP. - Public debt-to-GDP projected to decline from 60.7 percent in 2024 to 58.0 percent by 2030. - Debt profile characteristics: long maturities, predominance of fixed-rate instruments, high share of domestic financing. - Revenue and expenditure management measures: - Targeted optimization and digitalization initiatives. - Implementation of key tax measures including the Value-Added Tax on Digital Services Act, the Capital Markets Efficiency Promotion Act, and the Enhanced Fiscal Regime for Large-Scale Metallic Mining Act. - Strengthened tax administration through the Ease of Paying Taxes Act. - Public spending efficiency via streamlined procurement, digitalization, optimization, Government Optimization Program, and E-Governance Act. - Social transfers targeting enhanced through complete roll-out of PhilSys ID and wider adoption of Community-Based Monitoring System. - Alignment of Public Financial Management (PFM) systems with international standards. - Performance monitoring and audit of infrastructure projects improved through digitalization and adoption of technologies such as satellite imagery and geotagging. - Capacity building for local government units in PFM. ### Monetary Policy - BSP view: room for monetary policy to be accommodative while remaining vigilant to price stability risks. - Rationale: benign inflation outlook and moderating domestic demand provide space to support economic activity. - Policy rate changes in October 2025: - Policy rate reduced by 25 basis points to 4.75 percent. - Overnight deposit facility rate lowered to 4.25 percent. - Lending facility rate lowered to 5.25 percent. - BSP central projection: inflation will fall below target in 2025, then return to the target range of 3.0 percent ±1.0 percentage point in the next two years. - BSP commitment: data-dependent approach to adjusting policy stance in line with evolving inflation and growth outlooks. ### Financial Sector Policy - Banking system described as sound, liquid, and well-capitalized. - BSP initiatives to strengthen financial stability: - Strategic focus on systemic risk oversight and supervision under Enterprise Strategy 2024–2029. - Development of an integrated systemic risk management framework consistent with 2021 Financial Sector Assessment Program recommendations. - Establishment of a specialized resolution group. - Strengthening capacity for systemic risk surveillance and expanding macroprudential, crisis management, and resolution toolkit. - Anti-money laundering/countering the financing of terrorism and proliferation financing (AML/CTF/CPF) actions: - Country exited FATF grey list and was removed from UK and EU list of high-risk third countries with strategic deficiencies on AML/CTPF. - Third National AML/CTF/CPF Risk Assessment completed. - Activities commenced to update the National AML/CTF/CPF Strategy (NACS) through development of NACS 2026-2030. - Virtual assets (VAs) and crypto regulation: - BSP refining regulations on supervision of VA/VA service providers, including clarifications on the “travel rule” aligned with FATF Recommendations. - Securities and Exchange Commission issued new policies and regulations covering Crypto Asset Service Providers, including initial coin offerings. ### Structural reforms and growth agenda - Trade and investment initiatives: - Upcoming PH-UAE Free Trade Agreement and negotiations with EU, Chile, and Canada to expand export markets. - Recent legislative reforms: amendments to the Investor’s Lease Act, Right-of-Way Act, CREATE MORE Act; implementation of the Public-Private Partnership Code; liberalization of economic sectors. - Labor market and skills: - Building on Enterprise-Based Education and Training Framework Act and Philippine Digital Workforce Competitiveness Act to improve employability and adaptability amid AI and emerging technologies adoption. - Competitiveness priorities: - Lowering energy costs, improving digital connectivity, accelerating infrastructure development. - Climate resilience mainstreaming: - Climate resilience integrated in governance and implementation frameworks; articulated in National Adaptation Plan 2023–2050 and PDP 2023 to 2028. - National strategy described as science-based, anticipatory, and preventive with emphasis on data-driven adaptation and mainstreaming into sectoral strategies and local governance through Local Climate Change Action Plans. - Department of Finance support via People’s Survival Fund (PSF) and mobilization of international climate finance. - PSF approvals as of October 2025: 24 adaptation projects and project development grants nationwide, totaling ₱1.4 billion. - October 2025: Philippines secured an ₱ 8.7 million grant from the Adaptation Fund (AF) to develop a climate adaptation project aimed at safeguarding food security. - April 2025: approval of a separate USD10-million AF-supported project proposal (noting this project approval is mentioned in the source text). ### Policy direction and international engagement - Authorities reaffirm commitment to maintaining sound macroeconomic fundamentals and advancing structural reforms to promote a resilient, inclusive, and sustainable economy. - Authorities value the Fund’s continued technical assistance, surveillance, and policy dialogues and will incorporate insights from these engagements in policy formulation and reform agenda. *Source: IMF staff report content provided in the PDF.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1phlea2025001-source-pdf.pdf_