## _cr1249 - 3.7 percent in 2011 to 4.2 percent in 2012. The global economy remains a key downside

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### Growth outlook and risks
- Growth performance and projections:
  - Growth slowed from 7.6 percent in 2010 to 3.6 percent (y/y) during the first three quarters of 2011.
  - Staff projects growth to rise from 3.7 percent in 2011 to 4.2 percent in 2012.
  - Medium-term growth is projected to recover to around 5 percent; the authorities’ target is 7–8 percent.
- Domestic supports for 2012:
  - Recovery in government spending.
  - Start of public-private partnerships (PPPs).
  - Supportive monetary conditions.
  - Robust remittances.
- External downside risks:
  - Renewed global shocks could transmit via goods and services exports, financial flows, and remittances.
- Illustrative downside scenario (Box 1):
  - Assumes a -3.5 percent shock to output in the euro area and -1 percent in the United States for two years.
  - Staff estimates Philippine growth could drop by about two thirds of the decline in external growth before any fiscal and monetary response.
  - Effects include: negative output gap, decline in inflation, deterioration in the fiscal balance due to revenue automatic stabilizers; current account falls initially as exports decline faster than imports and then rises as domestic demand weakens.

### Key macroeconomic and external figures
- Labor and prices:
  - Unemployment: over 7 percent.
  - Underemployment: 19 percent.
  - Headline inflation: around 4½ percent (y/y) through November 2011.
  - Core inflation (excluding volatile food and energy items): contained in the 3½–4 percent range.
- Financial and monetary:
  - Credit growth: 22 percent, y/y, as of November.
  - BSP forward book declined by $10 billion during January–November.
  - Peso appreciated by 0.7 percent in real effective terms during January–November 2011.
- Fiscal:
  - National government cash January–November: deficit P 96 billion; 1 percent of GDP.
  - Annual budget objective: P 300 billion; 3 percent of GDP.
  - Staff expects the deficit for the year to fall to 1½ percent of GDP, implying a fiscal withdrawal of 1.8 percent of GDP.
- External sector:
  - International reserves rose by $12.9 billion to $75.3 billion (11 months of imports) during 2011.
  - Remittances: equivalent to around 10 percent of GDP.
  - Share of goods and services exports in GDP: about 50 percent.

### Monetary policy: supporting growth while keeping inflation manageable
- Policy actions and stance:
  - Early 2011: start of tightening to forestall inflation pressures.
  - Recent months: pause in tightening justified by heightened global downside risks, low core inflation, and relatively short policy-to-inflation lags.
  - Policy easing is not needed at this time, but policy could be recalibrated if downside risks materialize.
- Transmission and liquidity management:
  - Transmission hampered by the fall in short-term Treasury and interbank rates below policy rates; moves in the policy rate might have limited impact on lending rates.
  - Reserve money kept in check by partially sterilizing the rise in net foreign assets through the BSP’s special deposit accounts (SDA), which have risen to very high levels.
  - Authorities have unwound crisis-related liquidity support measures and started to tighten monetary policy since March 2011, then paused tightening amid global uncertainties and low core inflation.
- Institutional recommendations (Chapter 2):
  - Give the BSP tools for active liquidity management, including the ability to issue its own bills.
  - Interim measure: close coordination of Treasury issuances and monetary policy to strengthen the monetary mechanism.

### Fiscal policy: near-term support and medium-term consolidation
- 2011 stance and actions:
  - National government deficit January–November: P 96 billion; 1 percent of GDP, much below the annual target of P 300 billion; 3 percent of GDP, mainly reflecting lower capital expenditure on public construction.
  - October announcement: fast-tracking of spending of about 0.7 percent of GDP on infrastructure, local government transfers, and job training to provide stimulus in late 2011.
- Medium-term plan and projections:
  - Authorities committed to gradual fiscal consolidation; plan envisaged reduction in the national government deficit from 3½ percent of GDP in 2010 to 2 percent of GDP from 2013 onwards.
  - Under the envisaged path, consolidation would generate primary surpluses of about 1 percent of GDP and reduce the public debt to GDP ratio from 51 percent in 2011 to 44 percent by 2016.
- Staff recommendations:
  - Fiscal policy should provide welcome support for growth in 2012 as expenditures rise from their unexpectedly low level in 2011.
  - Over the medium term, planned fiscal consolidation should strengthen the budget’s ability to respond to shocks.
  - Reorient expenditure toward key priorities for inclusive growth; higher revenue will be needed to attain these objectives.
  - Revenue effort required for 2012 budgeted expenditure and deficit objectives: increase in revenue equivalent to 1½ percent of GDP.
  - Tax administration improvements estimated to yield ½ percent of GDP; additional tax measures likely needed (examples: reform excises, rationalize fiscal incentives, address inefficiencies in the VAT).
  - A reform of excises on alcohol and tobacco ("sin taxes") could potentially yield additional revenue of ½ percent of GDP in 2012 and 1 percent of GDP in 2013.
- Fiscal framework progress:
  - Passage of the Government-Owned and Controlled Corporation (GOCC) reform act.
  - Introduction of zero-based budgeting and a fiscal risk statement.
  - Planned PPPs helpful for infrastructure but fiscal risks should be monitored and reflected in fiscal accounts.
  - Civil service wage bill will continue to rise in 2012 due to the 2009−2012 Salary Standardization exercise and will account for 40 percent of primary expenditure.

### External sector and reserves
- Balance of payments and buffers:
  - Remittances, BPO exports, and capital inflows have offset lower electronics exports.
  - Balance of payments remains in sizable surplus.
  - International reserves rose by $12.9 billion to $75.3 billion (11 months of imports) during 2011.
- Reserve dynamics and market episodes:
  - BSP forward book declined by $10–11 billion during January–November 2011, with most of the decline in September amid a rise in global risk aversion and reversal of capital flows.
  - The September episode led to a temporary drop in reserves and the exchange rate and a jump in sovereign spreads.
- Staff and authorities view on reserves and exchange rate:
  - Staff: reserves and exchange rate flexibility can provide a cushion against external shocks; real exchange rate broadly in line with medium-term fundamentals; scope to use reserves to smooth volatile outflows; support limited FX intervention and exchange rate adjustment to sustained inflows.
  - Authorities: reserves were high and provided an important buffer during the global crisis and 2011 turbulence; markets and rating agencies react negatively to abrupt falls in reserve levels.

### Financial sector resilience and vulnerabilities
- Resilience and indicators:
  - Financial sector resilience maintained through recent global turbulence.
  - BSP early warning and financial stress exercises find the system resilient to a range of potential shocks.
  - Universal and commercial banks’ nonperforming loan ratios low (2.6 percent) and banks’ capital adequacy ratios high (16.4 percent) as of June 2011.
- Vulnerabilities to monitor:
  - Concentration risk.
  - Interest rate risk.
  - Real estate exposures (including nonbank financial institutions and property developers outside regulatory purview).
  - Rapid credit growth and potential loosening of lending standards.
  - Global spillovers and potential pullbacks of foreign credit or portfolio flows.
  - Pressure on banks to loosen lending standards as excess reserves build up and rates on alternative assets (such as Treasury bills) remain low.
- Supervisory and regulatory strengthening (recommended):
  - Prompt Congressional approval of amendments to the New Central Banking Act (NCBA) to: enhance supervision by providing supervisors greater legal powers and protection from litigation; lift remaining bank secrecy constraints on examiners; strengthen prompt corrective action and bank resolution framework; allow the BSP to issue its own debt securities to strengthen liquidity management.
  - Authorities committed to addressing AML/CFT gaps noted by FATF and awaiting Congressional approval of legislative amendments.

### Building faster and more inclusive growth
- Authorities’ medium-term development plan (Philippine Development Plan, PDP) priorities:
  - Strengthening infrastructure, governance, human capital, social safety nets, and access to finance.
- Staff view on requirements to reach authorities’ 7–8 percent growth target:
  - Strengthen the investment environment and public infrastructure.
  - Promote job creation and productivity.
  - Raise revenue to expand public investment; improve governance and the business climate.
  - Strengthen human capital, job training, and job search assistance.
  - Reorient public spending toward social and infrastructure priorities; strengthen social safety nets and access to finance for the poor.
- Policy priority: give life to the PDP to strengthen the structural basis for inclusive growth.

### Crisis toolkit and policy space to respond to shocks
- Tools available and recommended actions if further negative global shocks occur:
  - Use reserves to smooth the impact.
  - Allow the exchange rate to absorb part of the shock.
  - Recalibrate or temporarily reverse monetary tightening if needed.
  - Let automatic stabilizers operate; temporarily boost expenditures faster than planned if necessary, subject to expenditure management safeguards and within a medium-term consolidation strategy.
  - Support financial market liquidity via special facilities, foreign exchange swaps, and lower reserve requirements.
- Modeling evidence (Box 2, GPM with Bayesian techniques):
  - Core result: The short-term impact of a 1 percent of GDP fiscal stimulus is slightly greater than the combined impact of a 100 basis points change in the policy interest rates and lending conditions.
  - Short-term impact on output gap (model results):
    - Fiscal Balance (In percent of GDP): 0.21
    - Policy Rate (In percentage points): 0.06
    - Lending Conditions (In percentage points): 0.13
    - Real Exchange Rate (In percent): 0.02
  - Interpretation: Fiscal policy would be more effective than monetary policy in supporting economic activity in the current juncture because a cut in policy rates would have only a modest impact without easing lending conditions; T-bill rates are close to the lower bound and lending rates are already at historical lows.

### Debt dynamics, external financing, and vulnerabilities (Appendix I)
- Public debt outlook:
  - Nonfinancial public debt declined from 96 percent of GDP in 2003 to 53.5 percent of GDP in 2010.
  - Under a national government deficit of 2 percent of GDP, public debt projected to decline to 44 percent of GDP by 2016.
  - Gross financing need projected to decline from 15 percent of GDP in 2010 to 9 percent of GDP by 2016.
- Sensitivity and vulnerabilities:
  - If the deficit remains 1 percent of GDP higher than projected or medium-term growth is lower by 1 percent, debt would remain around 50 percent of GDP through 2016.
  - Main vulnerability: high share of foreign-currency debt → exchange rate risk.
  - Example stress test: one-time real depreciation of 30 percent would entail a 14 percent jump in the external debt ratio from its end-2010 level.
- Selected public sector debt ratios (public sector debt, percent of GDP):
  - 2006: 71.1; 2007: 58.9; 2008: 58.2; 2009: 58.1; 2010: 53.5; 2011: 51.3; 2012: 50.6; 2013: 48.8; 2014: 47.0; 2015: 45.3; 2016: 43.7
- External debt and gross external financing needs:
  - Baseline external debt ratio (percent of GDP): 2006: 50.4; 2007: 44.6; 2008: 37.6; 2009: 38.5; 2010: 36.9; 2011: 37.4; 2012: 37.2; 2013: 36.9; 2014: 36.3; 2015: 35.6; 2016: 34.8
  - Gross external financing need (US$ billions): 2006: 9.3; 2007: 4.7; 2008: 10.4; 2009: 5.0; 2010: 2.4; 2011: 9.7; 2012: 13.1; 2013: 14.4; 2014: 14.4; 2015: 14.7; 2016: 15.6
- Policy implications (implicit in analysis):
  - Maintain medium-term fiscal consolidation consistent with a national government deficit at 2 percent of GDP to secure projected decline in public debt to 44 percent of GDP by 2016.
  - Reduce vulnerability to exchange-rate risk given the share of foreign-currency denominated debt.
  - Monitor and manage contingent liabilities to prevent large one-off impacts on debt dynamics.

### Executive Board and staff appraisal (summary)
- Macroeconomic assessment:
  - Macroeconomic conditions remain generally sound; authorities’ policy management supports confidence and has built room for a strong response should further shocks occur.
- Projections reiterated:
  - Staff expects GDP growth to rise from 3.7 percent in 2011 to 4.2 percent in 2012; medium-term growth around 5 percent.
  - Inflation should remain within the 3−5 percent official target range.
- Key recommended policy actions:
  - Strengthen tax administration, reform excises, rationalize fiscal incentives, and broaden the tax base.
  - Promptly approve NCBA amendments to strengthen banking supervision and allow the BSP to issue its own debt securities.
  - Use reserves and exchange rate flexibility as part of a contingent crisis response toolkit; consider fiscal stimulus where effective given modeling results.
  - Reorient expenditure toward social and infrastructure priorities while securing higher revenue.

*Source: 2011 ARTICLE IV REPORT PHILIPPINES — International Monetary Fund (excerpts contained in IMF Country Report No. _cr1249).*

### 3.7 percent in 2011 to 4.2 percent in 2012. The global economy remains a key downside

### _cr1249 - 3.7 percent in 2011 to 4.2 percent in 2012. The global economy remains a key downside

### Growth outlook and risks
- Growth slowed from 7.6 percent in 2010 to 3.6 percent (y/y) during the first three quarters of 2011; staff projects growth to rise from 3.7 percent in 2011 to 4.2 percent in 2012.
- Medium-term growth is projected to recover to around 5 percent; the authorities’ target is 7–8 percent.
- Key domestic supports for 2012: recovery in government spending, start of public-private partnerships (PPPs), supportive monetary conditions, and robust remittances.
- External environment is a clear downside risk; renewed global shocks could transmit via goods and services exports, financial flows, and remittances.
- Box 1 illustrative downside scenario:
  - Assumes a -3.5 percent shock to output in the euro area and -1 percent in the United States for two years.
  - Staff estimates Philippine growth could drop by about two thirds of the decline in external growth before any fiscal and monetary response.
  - Effects include: negative output gap, decline in inflation, deterioration in the fiscal balance due to revenue automatic stabilizers; current account falls initially as exports decline faster than imports and then rises as domestic demand weakens.

### Key macroeconomic and external figures
- Unemployment: over 7 percent.
- Underemployment: 19 percent.
- Credit growth: 22 percent, y/y, as of November.
- Headline inflation: around 4½ percent (y/y) through November 2011.
- Core inflation (excluding volatile food and energy items): contained in the 3½–4 percent range.
- National government cash January–November: deficit P 96 billion; 1 percent of GDP.
- Annual budget objective: P 300 billion; 3 percent of GDP.
- Staff expects the deficit for the year to fall to 1½ percent of GDP, implying a fiscal withdrawal of 1.8 percent of GDP.
- International reserves rose by $12.9 billion to $75.3 billion (11 months of imports) during 2011.
- BSP forward book declined by $10 billion during January–November.
- Peso appreciated by 0.7 percent in real effective terms during January–November 2011.
- Remittances: equivalent to around 10 percent of GDP.
- Share of goods and services exports in GDP: about 50 percent.

### Monetary policy: supporting growth while keeping inflation manageable
- Monetary policy response:
  - Early 2011: start of tightening to forestall inflation pressures.
  - Recent months: pause in tightening justified by heightened global downside risks, low core inflation, and relatively short policy-to-inflation lags.
  - Policy easing is not needed at this time, but policy could be recalibrated if downside risks materialize.
- Transmission issues:
  - The monetary transmission mechanism is hampered by the fall in short-term Treasury and interbank rates below policy rates.
  - Moves in the policy rate might have limited impact on lending rates because lending rates are influenced by interbank and Treasury rates.
- Liquidity management:
  - Reserve money has been kept in check by partially sterilizing the rise in net foreign assets through the BSP’s special deposit accounts (SDA), which have risen to very high levels.
  - Authorities have unwound crisis-related liquidity support measures and started to tighten monetary policy since March 2011, then paused tightening amid global uncertainties and low core inflation.

### Fiscal policy: near-term support and medium-term consolidation
- Fiscal stance in 2011:
  - National government deficit January–November: P 96 billion; 1 percent of GDP, much below the annual target of P 300 billion; 3 percent of GDP, mainly reflecting lower capital expenditure on public construction.
  - October announcement: fast-tracking of spending of about 0.7 percent of GDP on infrastructure, local government transfers, and job training to provide stimulus in late 2011.
- Staff recommendations and outlook:
  - Fiscal policy should provide welcome support for growth in 2012 as expenditures rise from their unexpectedly low level in 2011.
  - Over the medium term, planned fiscal consolidation should strengthen the budget’s ability to respond to shocks.
  - Expenditure is being reoriented toward key priorities for inclusive growth.
  - Higher revenue will be needed to attain these objectives.

### External sector and reserves
- Balance of payments:
  - Remittances, BPO exports, and capital inflows have offset lower electronics exports.
  - Balance of payments remains in sizable surplus.
- Reserve dynamics and market episodes:
  - International reserves rose by $12.9 billion to $75.3 billion (11 months of imports) during 2011.
  - BSP forward book declined by $10 billion during January–November, with most of the decline in September amid a rise in global risk aversion and reversal of capital flows.
  - The September episode led to a temporary drop in reserves and the exchange rate and a jump in sovereign spreads.

### Financial sector resilience and vulnerabilities
- Overall resilience:
  - Financial sector resilience has been maintained through recent global turbulence.
  - BSP early warning and financial stress exercises find the system resilient to a range of potential shocks.
- Risks to monitor:
  - Concentration risk.
  - Interest rate risk.
  - Real estate exposures.
  - Global spillovers and potential pullbacks of foreign credit or portfolio flows.
  - Pressure on banks to loosen lending standards as excess reserves build up and rates on alternative assets (such as Treasury bills) remain low.

### Building faster and more inclusive growth
- Authorities’ medium-term development plan focuses on raising growth and strengthening inclusiveness through mutually reinforcing measures.
- Staff view: achieving the authorities’ 7–8 percent growth target would require additional measures, particularly to:
  - Strengthen the investment environment and public infrastructure.
  - Promote job creation and productivity.
- Policy priority: give life to the Philippines Development Plan (PDP) to strengthen the structural basis for inclusive growth.

*2011 ARTICLE IV REPORT PHILIPPINES — International Monetary Fund, January 18, 2012*

### Chapter 2 of the selected issues paper provides

### _cr1249 - Chapter 2 of the selected issues paper provides

### Monetary Policy: liquidity management and BSP instruments
- Large external inflows are constrained by the BSP’s small remaining holdings of treasury securities for repo operations and its lack of legal authority to issue central bank securities for monetary policy operations.
- Importance of giving the BSP tools for active liquidity management, including the ability to issue its own bills.
- Interim measure: close coordination of Treasury issuances and monetary policy could help strengthen the monetary mechanism.
- Authorities’ stance:
  - Agreed with staff’s characterization of monetary policy.
  - Appreciated staff’s view that the pause in monetary tightening was warranted.
  - Viewed inflation pressures as moderate but felt monetary easing was not needed because monetary policy was already supportive of growth and fiscal policy was expected to provide stimulus in the near term.
  - Monetary policy could be eased if growth prospects were to deteriorate further.
  - Agreed that it would be helpful for the BSP to be allowed to issue its own bills to enhance the effectiveness of monetary policy.

### Reserves and Exchange Rate: a cushion for adverse shocks
- Background findings:
  - The authorities have used a varied toolkit for managing external inflows.
  - The exchange rate has appreciated in real effective terms.
  - International reserves have risen rapidly, including during the global financial crisis, and are well above standard precautionary metrics as well as the Fund’s new adequacy metric.
  - The BSP has sterilized much of the reserve buildup to avoid an undue expansion in monetary aggregates; sterilization costs have increased owing to domestic-foreign interest differentials.
  - Authorities liberalized controls on capital outflows, prepaid some external debt, and had macro˗prudential measures in place for some years.
  - Effective January 2012, the BSP raised market risk weights on banks’ nondeliverable forward (NDF) positions as a macro˗prudential measure.
- Staff’s view:
  - Reserves and exchange rate flexibility can provide a cushion against external shocks while facilitating adjustment to sustained external inflows.
  - The real exchange rate remains broadly in line with its medium˗term fundamentals based on standard approaches and an alternative estimation that smooths remittance income.
  - Staff supports authorities’ policy of limiting FX intervention to smoothing operations and allowing the exchange rate to adjust to market pressures.
  - There is scope to use reserves to smooth effects of volatile outflows.
  - The NDF regulatory move could be a useful macro˗prudential tool.
  - With the exchange rate not overvalued, sustained inflow pressures over the medium term would need to be met by exchange rate adjustment.
- Authorities’ view:
  - Reserves were high but authorities felt not as excessive as the Fund’s adequacy metric would suggest given insurance value is hard to measure.
  - Reserves provided an important buffer during the global crisis and 2011 turbulence.
  - Markets and rating agencies react negatively to abrupt falls in reserve levels.

### Fiscal Policy: medium-term consolidation with near-term expansion
- Background and authorities’ plan:
  - Authorities committed to gradual fiscal consolidation over the medium term.
  - Fiscal plan announced in 2010 envisaged reduction in the national government deficit from 3½ percent of GDP in 2010 to 2 percent of GDP from 2013 onwards.
  - In 2011, the deficit fell significantly below the targeted 3 percent of GDP; deficit targets for 2012 (2.6 percent of GDP) and the medium term were retained.
  - Under the envisaged path, consolidation would allow for a stimulus in 2012 as expenditures pick up after their temporary drop in 2011.
  - Over the medium term, consolidation would generate primary surpluses of about 1 percent of GDP and reduce the public debt to GDP ratio from 51 percent in 2011 to 44 percent by 2016.
- Main elements of fiscal strategy:
  - Stronger tax administration.
  - Reorientation of expenditure toward social sectors and infrastructure.
  - Public debt management strategy to reduce exchange rate and maturity risk.
  - Tax administration efforts supported by technical assistance and estimated to have generated revenue gain in 2011 (½ percent of GDP).
  - Expenditure plans: greater emphasis on basic education, expansion of conditional cash transfers (CCTs), wider health care coverage.
  - PPP projects to develop infrastructure will start from 2012.
  - Civil service wage bill will continue to rise in 2012 due to the 2009−2012 Salary Standardization exercise and will account for 40 percent of primary expenditure.
  - Continued issuance of peso˗denominated global bonds and debt swaps to reduce shares of foreign currency and short˗term debt.
- Staff’s view and recommendations:
  - Staff supports a revenue-based medium-term consolidation that allows a near-term supportive stance.
  - On a cyclically-adjusted basis, fiscal policy would provide a 0.8 percent of GDP stimulus in 2012.
  - Planned consolidation would expand budgetary space to deal with shocks, anchor expectations, and reduce gross financing requirement.
  - Given social and infrastructure needs, consolidation should focus on raising the (low) ratio of revenue to GDP while reorienting expenditure to priorities.
  - Once current civil service wage adjustments are complete, the civil service wage bill should be carefully managed to avoid crowding out priority spending.
  - Achieving fiscal objectives will require a sizable tax effort:
    - For 2012 budgeted expenditure and deficit objectives to be achieved, an increase in revenue equivalent to 1½ percent of GDP is required.
    - Authorities estimate, and staff agrees, that tax administration improvements could yield revenue increases equivalent to ½ percent of GDP.
    - Consequently, additional tax measures are likely needed (examples: reform excises, rationalize fiscal incentives, address inefficiencies in the VAT).
    - Staff welcomes submission of bills to rationalize “sin taxes” and streamline tax incentives.
    - A reform of excises on alcohol and tobacco ("sin taxes") could potentially yield additional revenue of ½ percent of GDP in 2012 and 1 percent of GDP in 2013.
  - Progress in strengthening the fiscal framework:
    - Passage of the Government-Owned and Controlled Corporation (GOCC) reform act.
    - Introduction of zero˗based budgeting and a fiscal risk statement.
    - Planned PPPs helpful for infrastructure but fiscal risks should be monitored and reflected in fiscal accounts.
  - Pension system for uniformed personnel faces substantial increase in benefit payments and needs fiscal management.
- Authorities’ views on fiscal policy:
  - Reiterated firm commitment to medium˗term consolidation.
  - Improvement in public debt profile from debt management operations reduced currency and rollover risks and improved credibility.
  - Will continue to reorient expenditure toward social safety nets, human capital, and infrastructure.
  - New budget processes and greater transparency should ease and reduce cost of public project execution.
  - May consider performance-based compensation for civil servants to enhance efficiency and help control the wage bill.
  - Increase in revenue required for 2012 deficit and expenditure objectives would be delivered by tax administration improvements and sin tax and incentives measures.
  - Other tax reforms were not planned at this time; if revenue gains prove insufficient, authorities would reduce nonpriority expenditure or speed up privatization to provide additional resources to support spending.

### Financial Sector: monitoring spillovers, maintaining resilience
- Background and indicators:
  - Financial sector resilient to global turbulence.
  - Banking sector indicators consistent with the 2010 Financial System Stability Assessment (FSSA).
  - BSP’s bank stress testing suggested banking sector is well placed to withstand direct effects of a range of shocks.
  - Asset price overheating not a concern; equity P/E ratios broadly in line with historical averages; property price increases moderate.
  - Universal and commercial banks’ nonperforming loan ratios have remained low (2.6 percent) and banks’ capital adequacy ratios high (16.4 percent) as of June 2011 (latest data available).
- Staff’s assessment of vulnerabilities:
  - Key vulnerabilities: potential spillovers from global financial disruptions, real estate exposures, rapid credit growth, concentration and interest rate risk.
  - Financial system limited exposure to Europe (1½ percent of total assets), but contagion could occur through pullbacks of credit by European banks, whose lending is equivalent to nearly 10 percent of GDP, or a retreat by foreign investors from local markets.
  - Prominent role of conglomerates as recipients of bank credit and owners of banks, and high leverage in parts of the corporate sector, necessitate close monitoring of conglomerates and feedback loops among banks.
  - Rapid credit growth may pose risks for lending standards and asset quality as the credit cycle matures.
  - Anecdotal evidence of rising vacancy rates and softening rents in certain niche segments may signal emerging excess supply in real estate.
  - Real estate exposures of nonbank financial institutions and property developers outside regulatory purview could be an emerging vulnerability requiring close coordination among regulators.
  - A contingency plan may be useful to prepare for a potential tail event.
- Supervisory and regulatory strengthening:
  - Authorities have continued to strengthen the supervisory and regulatory framework since the 2010 FSSA update.
  - Important next step: prompt Congressional approval of amendments to the New Central Banking Act (NCBA) to enhance supervision by providing supervisors greater legal powers and protection from litigation, lifting remaining bank secrecy constraints on examiners, and strengthening prompt corrective action and bank resolution framework.
  - The NCBA amendments would also allow the BSP to issue its own debt securities, providing an instrument to strengthen liquidity management.
  - Authorities committed to addressing AML/CFT gaps noted by FATF and awaiting Congressional approval of legislative amendments to criminalize money laundering and terrorist financing adequately.
- Authorities’ views on financial sector risks:
  - Broadly shared staff’s assessment of soundness and vulnerabilities.
  - Noted European banks in the Philippines were liquid, had access to a large local deposit base, and had not displayed undue signs of stress.
  - Trade finance and dollar funding had not been interrupted.
  - Conglomerates’ revenue diversification mitigates concentration risk; supervisors pay close attention to systemically important conglomerates.
  - Regulators coordinate closely to monitor potential real estate vulnerabilities.

*Source: Chapter 2 of the selected issues paper in IMF Country Report No. _cr1249.*

### 31.      Further negative global shocks could

### _cr1249 - 31.      Further negative global shocks could

### Spillovers and policy space
- Further negative global shocks could have substantial spillovers to the Philippines, but there is policy space to respond across a broad front.
- Tools that were used during the 2008−2009 global crisis could be reactivated:
  - Use reserves to smooth the impact.
  - Allow the exchange rate to absorb part of the shock.
  - Recalibrate or temporarily reverse monetary tightening if needed.
  - Let automatic stabilizers operate; temporarily boost expenditures faster than planned if necessary, subject to expenditure management safeguards and within a strategy for medium˗term consolidation.
  - Support financial market liquidity via special facilities, foreign exchange swaps, and lower reserve requirements.

### Authorities’ views
- Authorities view that policy space exists for a strong response to further shocks.
- Contingency plans were prepared and the 2008−2009 toolkit remained useful.
- Current policy settings were seen as supportive of growth: the monetary stance was not restrictive and fiscal policy was set to expand in 2012.

### Box 2 — Effectiveness of macroeconomic policy responses to global shocks
- Key modeling approach: extended Global Projection Model (GPM) using Bayesian techniques.
- Core result: The short˗term impact of a 1 percent of GDP fiscal stimulus is slightly greater than the combined impact of a 100 basis points change in the policy interest rates and lending conditions (measured as the spread between the 91˗day T˗bill rate and the policy rate).
- The impact of exchange rate depreciation is relatively weak.
- Short-term impact on output gap (table from model):
  - Fiscal Balance (In percent of GDP): 0.21
  - Policy Rate (In percentage points): 0.06
  - Lending Conditions (In percentage points): 0.13
  - Real Exchange Rate (In percent): 0.02
- Global fuel and food prices can have a significant impact on headline inflation and significant second˗round effects, implying the need to account for volatile commodity prices when evaluating inflation forecasts and the monetary stance.
- Interpretation: Fiscal policy would be more effective than monetary policy in supporting economic activity in the current juncture because:
  - A cut in policy rates would have only a modest impact without a concomitant easing of lending conditions.
  - T˗bill rates are close to the lower bound and lending rates are already at historical lows, limiting scope for substantial easing of lending conditions.

### Poverty, inclusiveness, and growth constraints
- Background findings:
  - Poverty has fallen in recent decades but relatively slowly; during the 2000s some progress was reversed.
  - Limited poverty reduction owes to relatively slow growth and rising income inequality.
  - Low investment is a long˗standing impediment to higher growth; low fiscal revenue has constrained public investment, and business climate perceptions, infrastructure limitations, and costly power have held back private investment.
  - Employment and underemployment remain high, particularly among young people.
- Staff views on priorities to raise living standards and inclusiveness:
  - Raise pace of growth and ensure benefits are shared more widely.
  - Raise revenue to expand public investment; improve governance and the business climate.
  - Strengthen human capital, job training, and job search assistance.
  - Raise total factor productivity via improvements in human capital and institutional quality, greater agricultural productivity, and expansion of industrial and service sectors.
  - Reorient public spending toward social and infrastructure priorities; strengthen social safety nets and access to finance for the poor.

### Staff appraisal, projections, and risks
- Macroeconomic assessment:
  - Macroeconomic conditions remain generally sound; authorities’ policy management supports confidence and has built room for a strong response should further shocks occur.
- Growth and inflation projections:
  - The staff expects GDP growth to rise from 3.7 percent in 2011 to 4.2 percent in 2012 based on a recovery in public spending, supportive monetary conditions, and robust remittances.
  - Over the medium term, growth should recover to around 5 percent.
  - Inflation should remain within the 3−5 percent official target range.
- Downside risks:
  - Significant downside risks arise mainly from the global economy.
  - Renewed shocks to global markets or activity, or prolonged sluggish world growth, would hurt goods and services exports, financial flows, and remittances.
  - Rapid credit growth at home may pose risks for lending standards and asset quality as the credit cycle matures.
- Monetary policy assessment:
  - Monetary tightening in early 2011 helped to forestall inflation pressures.
  - The subsequent pause in tightening is justified given extreme global downside risks and low core inflation.
  - Policy easing is not needed at the time of the report because monetary conditions are still supportive of growth; monetary policy could be recalibrated if global downside risks materialize.
- External buffers:
  - International reserves and exchange rate flexibility provide a cushion against external shocks.
  - The staff estimates the real effective exchange rate to be broadly in line with medium˗term fundamentals.
  - Reserve levels are well above standard precautionary metrics; there is scope to use reserves to smooth volatile outflows.
- Fiscal policy assessment:
  - Fiscal policy appropriately focuses on medium˗term consolidation while providing stimulus to growth in 2012.
  - In 2012, expenditure should pick up under more efficient and transparent budget processes.
  - Planned consolidation would strengthen the budget’s ability to respond to future shocks, including natural disasters.
  - Reorientation of expenditure toward social and infrastructure priorities is underway; higher revenue will be needed to meet deficit and expenditure objectives.
  - Policy actions recommended: strengthen tax administration, reform excises, rationalize fiscal incentives, and broaden the tax base.
- Financial sector resilience and supervision:
  - The financial sector has been resilient to global turbulence so far.
  - Key vulnerabilities to monitor: concentration risk, interest rate risk, potential spillovers from global financial disruptions, real estate exposures of nonbank financial institutions and property developers.
  - To strengthen banking supervision, promptly approve amendments to the New Central Banking Act; amendments should allow the BSP to issue its own debt securities to strengthen liquidity management.
- Agreed crisis response toolkit (staff and authorities):
  - Reactivate 2008−2009 measures as needed.
  - Use reserves and exchange rate flexibility to smooth shocks.
  - Ease monetary policy if warranted.
  - Allow automatic stabilizers to operate and temporarily boost expenditures if necessary within medium˗term consolidation strategy and sound expenditure management.
  - Support financial market liquidity via special facilities, foreign exchange swaps, and lower reserve requirements.

*Source: IMF staff and authorities, 2011 Article IV report text excerpt.*

### 49.      It is recommended that the next

### _cr1249 - 49.      It is recommended that the next

### Real sector: growth, inclusiveness, and investment
- Main Message: Growth slowed down in 2011 and high frequency indicators suggest that it remained moderate in recent months. Growth would need to be faster and more inclusive to make a dent in poverty and reduce high-income inequality.
- The economy slowed down amid weaker global demand.
- High frequency indicators suggest that growth remains moderate.
- Growth has been slower than in comparator countries.
- The low investment ratio has held back potential growth.
- Income of the poor has grown more slowly than income of the upper quintiles.
- Income inequality also remains high.
- Key statistics and datapoints preserved from figures and text:
  - Real GDP per capita, index (1980=100): Philippines, Malaysia, Thailand, Indonesia, India, China, Vietnam plotted from 1980–2010 (figure context).
  - Investment Ratio (In percent of GDP) series for 2000–2011 for Indonesia, Malaysia, Philippines, Thailand (figure context).
  - Philippines: Per Capita Income by Quintile — average annual growth, in percent (right scale) for 1998 and 2006 (figure context).
  - Gini Index: Philippines (2009) listed among country comparisons (data source: World Bank, PovcalNet database).

### Monetary policy and inflation
- Main Message: Monetary conditions remain accommodative although policy rates have risen. A pause in tightening is now underway amid elevated global uncertainty.
- Excess reserves in the banking system have risen to record levels.
- Credit growth has picked up to double-digit levels.
- Real policy interest rates have risen and are now positive.
- Inflation has moderated.
- But real lending rates remain historically low.
- Policy rates remain below estimated Taylor-rule rates.
- Key statistics and datapoints preserved from figures and text:
  - Excess reserve indicators: RRA stocks and SDA stocks in billions of pesos, reserve money growth (y/y percent).
  - Money and Credit (Year-on-year percent change): Credit to the private sector, Commercial Loans (Net of RRPs), M3.
  - Real Policy Rates (Based on core inflation, in percent) comparisons: NIEs, ASEAN-5, Philippines (series May-07 to Nov-11).
  - Contributions to Inflation (Year-on-year percent change): components Food, Services, Others, Housing & repairs, Headline (2006–2011 series).
  - Selected Asia: Real Lending Rates (In percent) — latest 2/Average (2000-10) with note 1/ and 2/.
  - Policy rate (as of December 7, 2011) versus Taylor rule implied rate (country comparisons: Australia, China, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Thailand).

### Public finances: revenue-led consolidation, spending reorientation
- Main Message: The authorities are moving forward with a revenue-led fiscal consolidation strategy over the medium term while reorienting spending towards social sectors and infrastructure.
- Fiscal policy has tightened in 2011 owing to under execution of the budget.
- Government revenue remains low compared to peers.
- Low fiscal revenue constrains social spending and public investment.
- Although public debt declined, the government’s gross funding needs are still substantial.
- Interest expenditure is high relative to revenue, reflecting the Philippines’ low revenue ratio.
- Key statistics and datapoints preserved from figures and tables:
  - Revenues (In percent of GDP) comparisons: Philippines, Indonesia, Malaysia, Thailand, China, India (Average 2006−08, 2009, 2010 shown in figure context).
  - Public Spending on Education and Health (In percent of GDP): series 1995–2008 for multiple countries (figure context).
  - Link between government revenue and public investment: public investment (percent of GDP, 2000-10 average) vs government revenue (percent of GDP, 2000-10 average) plotted.
  - Gross Funding Needs, 2011 (In percent of GDP) — country cross-section with Philippines included.
  - Interest Payment (In percent of revenues) — Philippines vs Indonesia, Malaysia, Thailand, China, India for 2006, 2010, 2016 (figure context).
  - Table 1 (Selected Economic Indicators, 2008–13) highlights:
    - Nominal GDP (2010): P 9,003 billion ($199.6 billion)
    - Population (2010): 94.0 million
    - GDP per capita (2010): $2,123
    - Poverty headcount ratio at $2 a day at PPP (2006): 45 percent
    - IMF quota: SDR 1,019.3 million
    - Unemployment rate (July 2011): 7.1 percent
    - Real GDP (2008–13): 4.2, 1.1, 7.6, 3.7, 4.2, 4.7 (percent change)
    - CPI (annual average, 2008–13): 9.3, 3.2, 3.8, 4.5, 4.0, 4.0 (percent)
    - Gross investment (percent of GDP, 2008–13): 19.3, 16.6, 20.5, 20.8, 20.6, 21.0
    - National saving 1/ (2008–13): 21.4, 22.1, 25.0, 24.0, 22.5, 22.8
    - National government balance (authorities definition, percent of GDP, 2008–13): -0.9, -3.7, -3.5, -1.5, -2.6, -2.0
    - Nonfinancial public sector balance 3/ (percent of GDP, 2008–13): -0.3, -3.2, -3.4, -0.6, -2.3, -1.7
    - Nonfinancial public sector debt (percent of GDP, 2008–13): 58.2, 58.1, 53.5, 51.3, 50.6, 48.8

### Balance of payments and external adjustment
- Main Message: The balance of payments has remained strong. Exports have been weak and capital inflows have moderated since August, but remittances have been resilient.
- Exports have been growing more slowly than in other ASEAN economies.
- The current account balance remains in surplus, supported by resilient remittances.
- Capital inflows have moderated since the peak in late 2010, including portfolio investment inflows.
- International reserves have risen at a record pace.
- The peso has remained roughly unchanged in real effective terms.
- Key statistics and datapoints preserved from figures and tables:
  - Exports of Goods (3mma, year-on-year percent change) series Apr-07 to Oct-11 for Indonesia, Malaysia, Philippines, Thailand.
  - Trade balance and Current account balance (In percent of GDP) for 2008–2011 across Indonesia, Malaysia, Philippines, Thailand.
  - Capital Inflows (In millions of U.S. dollars): Direct investment, Portfolio investment, Financial derivatives, Other investment (Mar-07 to Oct-11 series).
  - Foreign Portfolio Investment (In millions of U.S. dollars): Net inflows, Inflows, Outflows (Apr-07 to Oct-11 series).
  - International Reserves (Gross international reserves in billions of U.S. dollars, Swap book in billions of U.S. dollars, Exchange rate peso per U.S. dollar) Apr-07 to Oct-11 series.
  - Real Effective Exchange Rate (2000=100) May-07 to Nov-11 series for Indonesia, Malaysia, Philippines, Thailand.
  - Table 5 (Balance of Payments, 2008−2013) highlights:
    - Current account balance (in percent of GDP, 2008–13): 3.6, 9.4, 8.9, 7.0, 4.2, 4.5
    - Trade balance (percent of GDP, 2008–13): -12.9, -8.8, -11.0, -16.5, -17.6, -19.1
    - Exports, f.o.b. (percent change): -2.5, -22.1, 34.9, -1.5, 0.5, 3.4
    - Imports, f.o.b. (percent change): 5.6, -24.0, 32.9, 7.7, 2.1, 4.7
    - Remittances of resident workers abroad 1/ (percent of GDP, 2008–13): 4.1, 4.6, 5.1, 5.5, 5.8, 6.1
    - Gross reserves (US$ billions): 37.6, 44.2, 62.4, 75.3, 84.7, 94.8 (table contexts vary; see figures for series)

### Financial stability and asset prices
- Main Message: The financial sector remains sound. P/E ratios have increased in recent months, while property prices and credit to the real estate sector have remained moderate.
- Philippine banks are well-capitalized, and nonperforming loans are relatively low.
- Bank lending has started to pick up in recent months across all sectors.
- Equity prices have reached their pre-crisis levels. P/E ratios have increased in recent months.
- Property prices remain moderate notwithstanding the pre-crisis run up in prices and real estate credit.
- The residential property market remains soft unlike in some countries in the region.
- Key statistics and datapoints preserved from figures and tables:
  - Capital adequacy ratio and Nonperforming loan ratio comparisons (2005, 2010) across Indonesia, Malaysia, Philippines, Thailand.
  - Loans Outstanding: Contribution to Growth (Year-on-year percent change) by sector: Agriculture, Manufacturing, Wholesale/retail trade, Real estate/renting/business services, Others 1/ (series Jun-07 to Sep-11).
  - Stock Market Indices (2000=100, end of period) May-06 to Nov-11: Philippines, NIEs, Emerging Asia.
  - Price to Earnings Ratios (May-05 to Nov-11 series).
  - Real Estate Prices and Credit Growth (Year-on-year percent change) series Sep-07 to Sep-11: Commercial, Residential, Total credit to real estate sector.
  - Residential Property Prices (Year-on-year percent change) Dec-04 to Dec-11 across Indonesia, Malaysia, Philippines, Singapore, Thailand with note 1/.
  - Table 7 (Banking Sector Indicators, 2008−11 Q1) key values:
    - Total capital accounts to total assets: 10.6, 11.1, 11.7, 12.0
    - Capital adequacy ratio (Solo) 2/: 14.7, 14.9, 16.0, 16.5
    - NPL ratio 3/: 4.5, 4.1, 3.9, 4.0
    - NPA ratio 4/: 5.1, 4.5, 3.9, 3.9
    - Distressed asset ratio 5/: 10.8, 9.3, 8.8, 8.7
    - NPL coverage ratio 6/: 86.0, 93.1, 97.6, 101.4
    - Return on assets: 0.8, 1.2, 1.4, 1.5
    - Return on equity: 6.9, 10.8, 12.2, 13.0
    - Cost-to-income ratio: 74.2, 65.8, 63.6, 63.2
    - Liquid assets to deposits: 52.5, 52.7, 59.7, 60.2
    - Loans (gross) to deposits: 69.7, 68.1, 64.5, 65.0

### Key macroeconomic and fiscal projections (selected table highlights)
- Table 6: Baseline Medium-Term Outlook, 2008–16 (selected series, percent of GDP unless otherwise indicated)
  - Real GDP (percent change, 2008–16): 4.2, 1.1, 7.6, 3.7, 4.2, 4.7, 5.0, 5.0, 5.0
  - GDP per capita (US$, 2008–16): 1,918; 1,827; 2,123; 2,232; 2,334; 2,444; 2,568; 2,699; 2,840
  - CPI (percent change, average, 2008–16): 9.3, 3.2, 3.8, 4.5, 4.0, 4.0, 4.0, 4.0, 4.0
  - Gross investment (percent of GDP, 2008–16): 19.3, 16.6, 20.5, 20.8, 20.6, 21.0, 21.1, 21.2, 21.3
  - National saving 1/ (percent of GDP, 2008–16): 21.4, 22.1, 25.0, 24.0, 22.5, 22.8, 23.0, 23.1, 23.2
  - Nonfinancial public sector balance 2/ (percent of GDP, 2008–16): -0.3, -3.2, -3.4, -0.6, -2.3, -1.7, -1.8, -1.7, -1.9
  - Nonfinancial public sector debt 6/ (percent of GDP, 2008–16): 58.2, 58.1, 53.5, 51.3, 50.6, 48.8, 47.0, 45.3, 43.7
  - Reserves, adjusted (US$ billions, 2008–16): 35.9, 44.2, 62.4, 75.3, 84.7, 94.8, 105.2, 116.2, 127.8
  - Gross external financing requirements (US$ billions, 2008–16): 10.4, 5.0, 2.4, 9.6, 11.9, 13.8, 14.0, 14.6, 15.7

### Select indicators of external vulnerability and banking system liquidity
- Table 8 (Indicators of External Vulnerability, 2008−12) highlights:
  - Gross international reserves, adjusted (US$ billions): 35.9 (2008), 44.2 (2009), 62.4 (2010), 75.3 (2011), 84.7 (2012 projection)
  - Maturing short-term debt (US$ billions): 10.0 (2008), 6.5 (2009), 10.6 (2010), 11.9 (2011), 12.9 (2012)
  - Amortization of medium and long-term debt (US$ billions): 4.1 (2008), 4.3 (2009), 4.8 (2010), 6.0 (2011), 4.7 (2012)
  - Net FDI inflows (US$ billions): 1.3 (2008), 1.6 (2009), 1.2 (2010), 1.0 (2011), 1.1 (2012)
  - Total gross external debt (percent of GDP): 37.6 (2008), 38.5 (2009), 36.9 (2010), 36.5 (2011), 36.5 (2012)
  - Nonfinancial public sector debt (NFPSD) (percent of GDP): 58.2 (2008), 58.1 (2009), 53.5 (2010), 51.3 (2011), 50.6 (2012)
  - NFPSD denominated in FX or linked to the exchange rate (percent of NFPSD): 58.5 (2008), 58.8 (2009), 54.1 (2010), 53.1 (2011), 52.5 (2012)
  - Short-term general government debt (original maturity, percent of NFPSD): 18.2 (2008), 14.1 (2009), 11.2 (2010), 7.9 (2011), 8.5 (2012)
  - Average effective interest rate of government debt (in percent): 7.5 (2008), 7.0 (2009), 7.1 (2010), 6.6 (2011), 7.4 (2012)
  - Amortization of total debt (percent of GDP or in percent terms as tabulated): 15.6 (2008), 12.8 (2009), 10.5 (2010), 8.5 (2011), 8.2 (2012)

*Source: 2011 ARTICLE IV REPORT PHILIPPINES, INTERNATIONAL MONETARY FUND*

### APPENDIX I: —DEBT SUSTAINABILITY ANALYSIS

### _cr1249 - APPENDIX I: —DEBT SUSTAINABILITY ANALYSIS

### Outlook for public debt dynamics
- Nonfinancial sector public debt declined from 96 percent of GDP in 2003 to 53.5 percent of GDP in 2010.
- Under the government’s medium‑term objective of a national government deficit of 2 percent of GDP, public debt is projected to decline to 44 percent of GDP by 2016.
- Gross financing need is projected to decline from 15 percent of GDP in 2010 to 9 percent of GDP by 2016.
- Sensitivity to weaker fiscal or growth outcomes:
  - If the deficit remains 1 percent of GDP higher than currently projected or medium‑term growth is lower by 1 percent, debt would decline more gradually and remain at around 50 percent of GDP through 2016.
- Main vulnerability: high share of foreign‑currency debt → exchange rate risk.
- Selected historical and projected public sector debt ratios (public sector debt, in percent of GDP):
  - 2006: 71.1
  - 2007: 58.9
  - 2008: 58.2
  - 2009: 58.1
  - 2010: 53.5
  - 2011: 51.3
  - 2012: 50.6
  - 2013: 48.8
  - 2014: 47.0
  - 2015: 45.3
  - 2016: 43.7
- Of which foreign‑currency denominated public debt (percent of GDP):
  - 2006: 43.5
  - 2007: 33.7
  - 2008: 34.0
  - 2009: 34.1
  - 2010: 29.0
  - 2011: 27.3
  - 2012: 26.6
  - 2013: 26.2
  - 2014: 25.8
  - 2015: 25.5
  - 2016: 24.6
- Public sector gross financing need (in percent of GDP):
  - 2006: 23.0
  - 2007: 17.1
  - 2008: 14.0
  - 2009: 18.0
  - 2010: 15.2
  - 2011: 10.6
  - 2012: 10.0
  - 2013: 9.9
  - 2014: 9.5
  - 2015: 9.0
  - 2016: 9.2

### Projected external debt dynamics and vulnerabilities
- External debt declined from nearly 80 percent of GDP in 2001 to below 40 percent of GDP at end‑2010.
- Under the staff baseline, the external debt ratio is projected to decline slightly due to current account surpluses.
- Resilience to shocks:
  - One‑half standard deviation shocks to interest rates, growth, and the current account lead to only modest deterioration in external debt ratios over the medium term.
- Exchange‑rate vulnerability:
  - A one‑time real depreciation of 30 percent would entail a 14 percent jump in the external debt ratio from its end‑2010 level.
- Baseline external debt ratio (in percent of GDP):
  - 2006: 50.4
  - 2007: 44.6
  - 2008: 37.6
  - 2009: 38.5
  - 2010: 36.9
  - 2011: 37.4
  - 2012: 37.2
  - 2013: 36.9
  - 2014: 36.3
  - 2015: 35.6
  - 2016: 34.8
- Change in external debt (in percent of GDP):
  - 2006: -9.8
  - 2007: -5.8
  - 2008: -7.0
  - 2009: 0.9
  - 2010: -1.6
  - 2011: 0.5
  - 2012: -0.2
  - 2013: -0.3
  - 2014: -0.6
  - 2015: -0.7
  - 2016: -0.8
- Gross external financing need:
  - In billions of U.S. dollars:
    - 2006: 9.3
    - 2007: 4.7
    - 2008: 10.4
    - 2009: 5.0
    - 2010: 2.4
    - 2011: 9.7
    - 2012: 13.1
    - 2013: 14.4
    - 2014: 14.4
    - 2015: 14.7
    - 2016: 15.6
  - As percent of GDP:
    - 2006: 7.6
    - 2007: 3.1
    - 2008: 6.0
    - 2009: 3.0
    - 2010: 1.2
    - 2011: 4.5
    - 2012: 5.7
    - 2013: 5.9
    - 2014: 5.5
    - 2015: 5.2
    - 2016: 5.2

### Identified debt‑creating flows and fiscal dynamics
- Change in public sector debt (percent of GDP):
  - 2006: -11.2
  - 2007: -12.2
  - 2008: -0.7
  - 2009: -0.1
  - 2010: -4.6
  - 2011: -2.2
  - 2012: -0.7
  - 2013: -1.9
  - 2014: -1.7
  - 2015: -1.8
  - 2016: -1.6
- Identified debt‑creating flows (4+7+12), percent of GDP:
  - 2006: -10.9
  - 2007: -13.3
  - 2008: -0.8
  - 2009: -0.7
  - 2010: -4.2
  - 2011: -3.4
  - 2012: -1.5
  - 2013: -2.2
  - 2014: -2.2
  - 2015: -2.1
  - 2016: -1.8
- Primary deficit (percent of GDP):
  - 2006: -5.6
  - 2007: -4.6
  - 2008: -3.7
  - 2009: -0.7
  - 2010: -0.2
  - 2011: -2.7
  - 2012: -1.2
  - 2013: -1.5
  - 2014: -1.4
  - 2015: -1.3
  - 2016: -1.0
- Revenue and grants (percent of GDP):
  - 2006: 22.1
  - 2007: 23.2
  - 2008: 22.0
  - 2009: 19.9
  - 2010: 18.4
  - 2011: 18.3
  - 2012: 18.6
  - 2013: 19.0
  - 2014: 19.0
  - 2015: 19.0
  - 2016: 19.1
- Primary (noninterest) expenditure (percent of GDP):
  - 2006: 16.5
  - 2007: 18.6
  - 2008: 18.3
  - 2009: 19.2
  - 2010: 18.2
  - 2011: 15.6
  - 2012: 17.4
  - 2013: 17.4
  - 2014: 17.6
  - 2015: 17.7
  - 2016: 18.0

### Key macroeconomic and baseline assumptions
- Real GDP growth (in percent):
  - 2006: 5.2
  - 2007: 6.6
  - 2008: 4.2
  - 2009: 1.1
  - 2010: 7.6
  - 2011: 3.7
  - 2012: 4.2
  - 2013: 4.7
  - 2014: 5.0
  - 2015: 5.0
  - 2016: 5.0
- Average nominal interest rate on public debt (in percent):
  - 2006: 7.5
  - 2007: 6.8
  - 2008: 7.5
  - 2009: 7.0
  - 2010: 7.1
  - 2011: 6.6
  - 2012: 7.4
  - 2013: 7.0
  - 2014: 7.1
  - 2015: 7.0
  - 2016: 7.1
- Average real interest rate (nominal rate minus change in GDP deflator, in percent):
  - 2006: 2.5
  - 2007: 3.7
  - 2008: 0.0
  - 2009: 4.3
  - 2010: 2.8
  - 2011: 2.0
  - 2012: 3.4
  - 2013: 3.0
  - 2014: 3.1
  - 2015: 3.0
  - 2016: 3.1
- Inflation rate (GDP deflator, in percent):
  - 2006: 4.9
  - 2007: 3.1
  - 2008: 7.5
  - 2009: 2.8
  - 2010: 4.2
  - 2011: 4.6
  - 2012–2016: 4.0 (each year)

### Scenario and stress‑test findings
- Public debt bound tests use permanent one‑half standard deviation shocks to real interest rate, growth rate, and primary balance (and combined shocks).
- Historical scenario projections use ten‑year historical averages to project debt dynamics five years ahead.
- Public debt bound test outcomes shown for:
  - Interest rate shock
  - Growth shock
  - Primary balance shock and No Policy Change scenario (constant primary balance)
  - Combined shock
  - Real depreciation and contingent liabilities shocks (one‑time real depreciation of 30 percent and 10 percent of GDP contingent liabilities shock in 2010 in specified scenarios)
- External debt bound tests use permanent one‑half standard deviation shocks to real interest rate, growth rate, and current account balance; a one‑time real depreciation of 30 percent is also tested.
- Example stress result: One‑time real depreciation of 30 percent → external debt ratio increases by 14 percent from end‑2010 level.

### Policy implications (implicit in analysis)
- Maintain medium‑term fiscal consolidation consistent with national government deficit at 2 percent of GDP to secure projected decline in public debt to 44 percent of GDP by 2016.
- Reduce vulnerability to exchange‑rate risk given high share of foreign‑currency denominated debt (e.g., manage external currency exposures and consider currency composition of debt).
- Monitor and manage contingent liabilities to prevent large one‑off impacts on debt dynamics (scenarios include a 10 percent of GDP contingent liabilities shock in stress tests).
- Preserve current account surpluses and export performance to support declining external debt ratios and contain gross external financing needs.

*Source: APPENDIX I: —DEBT SUSTAINABILITY ANALYSIS (CR1249).*

### ANNEX II: PHILIPPINES—IMF-WORLD BANK

### ANNEX II: PHILIPPINES—IMF-WORLD BANK COLLABORATION (As of December 30, 2011)

### Coordination and country teams
- Country teams led by Mr. Rogier van den Brink, Lead Economist, World Bank, and Mr. Vivek Arora, Assistant Director, IMF mission chief.
- Other participating country team members included, on the Bank side: Kai Kaiser, Rosa Maria Alonso Terme, Yasuhiko Matsuda, Karl Kendrick Chua, Soonhwa Yi; and on the Fund side: Dennis Botman, Jay Peiris, Ola Melander, and Yoga Affandi.

### Shared assessment: main macroeconomic challenges
- Key policy challenge: navigate the uncertain global environment to maintain macroeconomic stability, create policy space to meet future potential shocks, and build the foundations for faster and more inclusive growth.
- Teams agreed on Philippines’ main macroeconomic challenges and the need for coordinated work during 2012.

### Maintaining macroeconomic stability
- Monetary policy: "responded well to changing circumstances."
- External cushions: "International reserves and exchange rate flexibility provide a cushion against external shocks while facilitating the adjustment to sustained inflows."
- Fiscal stance: staff supports government's intention to follow a "revenue-based fiscal consolidation over the medium term that nonetheless allows for a supportive stance in the near term."
- Fiscal implementation: "Achieving the fiscal objectives will require a sizable tax effort."
- Financial sector: "resilient to the global turbulence so far"; authorities continue to "further strengthen the banking supervision framework."

### Building inclusive growth
- Authorities’ 2011−2016 Philippine Development Plan (PDP) priorities: strengthening infrastructure, governance, human capital, and social safety nets to build faster and more inclusive growth.
- Implementation priorities: raise fiscal revenue, reorient expenditure toward social and infrastructure priorities, strengthen the investment environment, and promote job creation.
- World Bank Philippines Country Assistance Strategy (CAS) theme: inclusive growth with five strategic objectives:
  - stable macro stability;
  - improved investment climate;
  - better public service delivery;
  - reduced vulnerabilities;
  - good governance.
- CASPR updated strategy in April 2011 and assessed implementation as "generally on track to deliver the majority of the envisioned outcomes."

### Macro-critical structural reform areas (identified as central to macro stability and inclusive growth)
- Three areas identified:
  1. raising investment and pro-poor growth;
  2. public finance and social safety nets;
  3. the financial sector.

### Requests for information and collaboration
- Fund team requests:
  - Be kept informed of progress in World Bank’s discussions with the government on financing of infrastructure, PPPs, and implementation of the development policy loan.
  - Review and sharing of analytical work, in particular the annually prepared Philippines Development Report (PDR).
  - Follow up from the 2010 FSAP, and work related to reform of social safety nets, public expenditure reviews, and public financial management.
  - (Footnote) A Concept Note Review for the second Development Policy Loan was held on December 5, 2011. The IMF’s Vivek Arora was one of the peer reviewers.
- Bank team requests:
  - Be kept informed of the Fund’s assessments of macroeconomic policies and prospects.
  - Coordinate closely on technical assistance work, especially in tax policy and administration, and in public expenditure analysis and management.
  - Opportunity to participate in the 2012 Article IV mission meetings with the authorities.

### Division of tasks and agreement
- No disagreement between teams on key issues, challenges, or division of tasks.
- Further details on collaboration to be agreed at the technical level as work progresses.

### Bank and Fund planned activities, January 2012–December 2012 (selected items and expected delivery dates)
- Bank Work Program:
  - Philippines Development Report 2012 on employment — June 2012
  - Quarterly Economic Updates — March, June, Sep, Dec.
  - Public Expenditure Review II — June
  - Supervision on NPSTAR project — Quarterly
  - Development Policy Loan 2 — May 2012
  - Govt. Integrated Fin. Mgmt Info. System (GIFMIS) — To be determined
  - Report on migration and labor markets — June 2012
  - Grant (TFSCB) on national accounts — Closing in April 2012
  - Grant (TFSCB) on statistical development plan — Closing in Oct. 2012
  - Grant (AusAID) on developing enterprise survey — Closing in Dec. 2012
  - Grant (new IDF) on program evaluation — To start in March 2012
  - Strengthening Dept of Finance: Management of Fiscal Risk and GOCC/PPPs — June 2012
- Fund Work Program:
  - Article IV consultation selected issues papers — January 2012
  - Article IV staff report — January 2012
  - Possible working papers (Q1:2012) on:
    - Building inclusive growth
    - Capital flows, financial intermediation, and macro˗prudential policies
    - Commodity prices, lending conditions, and monetary policy
  - Ongoing technical assistance:
    - Banking supervision TA — Ongoing
    - Tax administration TA — Ongoing
    - Public financial management (cash management and budget execution) TA — Ongoing
    - Tax policy TA — Ongoing
- Joint Work Program:
  - Collaboration and review of the Philippines Development Policy Loan — End-2011 until May 2012
  - Review of the Philippines Development Report 2012 on employment — June 2012

### IMF-World Bank Collaboration Matrix: macro-critical structural issues (high-level mapping)
- Recovery and potential growth / Investment:
  - Corporate sector performance and vulnerabilities — (IMF/WB)
  - Investment environment — Regulatory framework (WB); Corruption/rule of law (WB); Investment incentives (IMF)
  - Energy sector: Power supply and expected shortage (WB); Energy sector taxation (IMF)
  - Rice market: NFA operation and efficiency (WB); Pricing and subsidy of rice (WB/IMF)
  - Labor market: WB (in relation to education); Regulatory framework (WB); Wages/union structure (WB)
- Public finance:
  - Revenue administration: BIR reform (IMF/WB); BOC (IMF in relation to customs)/WB in relation to trade facilitation; Revenue forecasting (WB/IMF)
  - Public financial management: Cash management (IMF); IFMIS/fiscal reporting (IMF); Budget preparation (IMF/WB); Budget execution (IMF/WB)
  - Tax policy: (IMF/WB)
  - Expenditure efficiency/policy and social safety net: Level of spending (IMF/WB); Efficiency (WB); Medium-term Expenditure Framework (WB/IMF)
  - GOCC reform (WB); Fiscal Responsibility Law (IMF/WB); PPPs (WB/IMF); Debt Management (World Bank/IMF)
- Financial sector:
  - Bank supervision (IMF); Banking sector soundness (IMF/WB); PDIC; Contingency Framework (IMF)
  - Capital market development (IMF/WB); International coordination to limit regulatory arbitrage (IMF)

*Source: ANNEX II: PHILIPPINES—IMF-WORLD BANK COLLABORATION (As of December 30, 2011).*

### ANNEX IV: PHILIPPINES—STATISTICAL ISSUES

### ANNEX IV: PHILIPPINES—STATISTICAL ISSUES (As of January 6, 2011)

### I. Assessment of Data Adequacy for Surveillance
- General: Data provision to the Fund has some shortcomings, but is broadly adequate for surveillance.
- National accounts:
  - NSCB rebased the national accounts from 1985 to 2000 as part of a World Bank-funded project, Improving the Quality and Usefulness of the Philippine System of National Accounts.
  - Continuing improvements include on-going efforts to fully implement the System of National Accounts, 2008.
  - Remaining weaknesses:
    - Coverage of the GDP.
    - Statistical discrepancies in the GDP estimates between the expenditure and production sides.
  - Authorities are working to improve:
    - (i) the accuracy of the GDP volume measures;
    - (ii) the coverage of the public corporations sector;
    - (iii) the accuracy of the quarterly GDP data;
    - (iv) the adoption of benchmark techniques to reconcile quarterly and annual national accounts estimates.
  - NSCB participation in the IMF Statistics Department’s Project on the Implementation of the System of National Accounts and the International Comparison Program (three-year technical assistance project, funded by the Government of Japan) to improve national accounts and price statistics.
- Price statistics:
  - In July 2011, the National Statistics Office introduced a rebased consumer price index (CPI).
  - Updated CPI compiled using weights based on the 2006 Family Income and Expenditure Survey.
  - Data from the 2008 Commodity and Outlet Survey were used to augment the provincial market baskets.
  - Methodological change: adoption of the Classification of Individual Consumption by Purpose (COICOP) for classification of all items.
  - Assistance will be provided to improve the quality of price statistics in Philippines.
- External sector statistics:
  - In 2005, the Central Bank of the Philippines (BSP) created a Department of Economic Statistics with a unit concentrating on compiling, analyzing, and publishing the balance of payments and the international investment position.
  - Since deregulation in the early 1990s, international transactions have increasingly flowed through nontraditional channels not adequately covered by the statistical reporting system.
  - New data sources introduced: Cross Border Transactions Survey and administrative-based reporting systems to address coverage issues, but challenges remain.
  - Foreign Currency Deposit Units (FCDUs) account for about 70−75 percent of foreign exchange settlements and are exempt from reporting requirements because of strict banking secrecy rules.
- Monetary and financial statistics:
  - Compilation of monetary and financial statistics (MFS) largely conforms to the Fund’s methodology.
- Government finance statistics:
  - Provision of fiscal data is broadly adequate for surveillance.
  - Major areas for improvement:
    - Detailed data for levels of the public sector beyond the national government.
    - Transition of fiscal data reporting to the GFSM 2001 format.
  - Fiscal Transparency ROSCs were conducted in 2002 and 2004.

### II. Data Standards and Quality
- The Philippines subscribed to the Special Data Dissemination Standards (SDDS) in August 1996.
- A data ROSC was published in August 2004.

### IMF Staff Representative Statement and Public Information Notice (PIN) Highlights
- Economic activity and GDP:
  - Q4: GDP growth roughly unchanged from previous quarter at 3.7 percent (year/year).
  - For 2011 as a whole, GDP growth was 3.7 percent (coincided with staff forecast; below authorities’ expectation of 4.5 percent−5.5 percent).
  - From PIN: growth reached 7.6 percent in 2010 and slowed to 3.7 percent in 2011.
- Demand and supply drivers:
  - Household consumption supported by robust remittances.
  - Public expenditure picked up significantly due to the government’s expenditure acceleration program launched in October.
  - On supply side: typhoons disrupted agricultural production; strong services and public construction activity offset effects.
  - Public construction fell earlier due to improved budget processes that temporarily slowed project approvals and reduced costs.
- External sector and reserves:
  - Exports contracted in December by ˗20.7 percent (year/year), led by electronics.
  - Net portfolio inflows stayed positive in December and January.
  - International reserves rose to $77 billion in January (equivalent to 11 months of imports and to 5 times short˗term external debt based on residual maturity).
  - The peso depreciated slightly in nominal and real effective terms since December.
- Inflation and monetary policy:
  - Headline inflation moderated to 3.9 percent (year/year) in January, from 4.2 percent in December, largely owing to food prices.
  - For 2011 as a whole, headline inflation averaged 4.4 percent on the 2000 basis.
  - BSP actions:
    - Cut policy interest rates by 25 basis points on January 19, bringing the key policy rate to 4.25 percent.
    - On February 2, BSP announced measures to rationalize reserve requirements, effective April 2012:
      - A unified reserve requirement would replace existing statutory and liquidity reserve requirements.
      - The reserve requirement would no longer be remunerated.
      - Vault cash would no longer be an eligible form of reserve requirement compliance.
      - To offset impact on banks’ intermediation costs, the reserve requirement ratio would be reduced by 3 percentage points at the same time.
- Labor market and financial conditions:
  - Unemployment and underemployment remain relatively high, at over 7 percent and 19 percent, respectively.
  - Financial conditions supportive of growth:
    - Real lending rates well below pre-crisis levels.
    - Interbank and short-term government bond yields remain below policy rates.
    - Credit growth 19.3 percent (year-on-year, as of December).
  - Monetary conditions have not led to inflation pressure because of emerging slack in the economy.

_Information compiled from ANNEX IV: PHILIPPINES—STATISTICAL ISSUES (As of January 6, 2011) and subsequent IMF staff statement and PIN material included in the source content._

### 4.4 percent. Headline inflation moderated slightly faster than expected to 3.9 percent (year/year)

### _cr1249 - 4.4 percent. Headline inflation moderated slightly faster than expected to 3.9 percent (year/year)

### Inflation and monetary policy
- Headline inflation moderated to 3.9 percent (year/year) in January, from 4.2 percent in December, largely owing to food prices.
- Authorities kept inflation within the target range of 3‐5 percent for 2011 at 4.4 percent (2000-based CPI) and 4.8 percent (2006-based CPI).
- Monetary policy actions in 2011:
  - Policy rates raised twice by 25 basis points each in March and May 2011.
  - Reserve requirements raised by 1 percentage point each in June and August 2011.
  - Policy interest rate reduced by 25 basis points on January 19, 2012 as inflation outlook remained within target.
- Policy objectives and recommendations:
  - Monetary conditions considered appropriately supportive of activity while keeping inflation in the middle of the target range.
  - Directors recommended swift approval of amendments to the central bank act to strengthen liquidity management and enhance policy effectiveness.
  - Authorities emphasize maintaining a flexible exchange rate and limited BSP participation to temper sharp fluctuations.

### Financial sector soundness and risks
- Banking sector indicators remain consistent with the 2010 Financial System Stability Assessment (FSSA).
- BSP stress testing suggested the banking sector is well placed to withstand the direct effects of a range of shocks.
- Financial markets experienced stress in August–September (emerging market turbulence) but recovered in subsequent months.
- Exposures and potential vulnerabilities:
  - Financial system has only limited exposure to Europe, though contagion could occur via credit pullbacks by European banks.
  - Prominent role of conglomerates as recipients of bank credit and high leverage in parts of the corporate sector call for close monitoring of conglomerates.
  - Rapid credit growth may pose risks for lending standards and asset quality as the credit cycle matures, including in the real estate sector.
  - Bonds and other euro zone instruments held by domestic banks equaled 1.4 percent of their total assets as of June 30, 2011.
  - Banks’ holdings of debt securities constitute 22.2 percent of their total assets.
- Supervisory and regulatory measures:
  - Directors recommended continued monitoring of concentration and interest rate risks, real estate exposures of nonbanks, and inward spillovers.
  - Further strengthening of supervisory and regulatory framework and of the AML/CFT regime was recommended.
  - Banking reforms announced January 2012 include:
    - Requiring stand-alone thrift, rural, and cooperative banks to be covered by the Basel 1.5 framework.
    - Requiring banks to set aside more funds to cover NDFs for “net open positions”.
    - Adoption of Basel 3 by commercial and universal banks in 2014.
    - Adoption of enhanced corporate governance and compliance standards.
  - Prompt Congressional approval sought for amendments to the New Central Banking Act (NCBA) to enhance supervision, lift bank secrecy constraints on examiners, strengthen prompt corrective action and bank resolution, and allow the BSP to issue its own debt securities.

### Fiscal policy and public finances
- National government cash deficit for 2011 (January–November) was P 96 billion; 1 percent of GDP, short of the annual budget objective of P 300 billion; 3 percent of GDP, mainly due to lower capital expenditure.
- Government announced fast-tracking of spending of about 0.7 percent of GDP on infrastructure, local government transfers, and job training in October, providing late-2011 stimulus.
- IMF staff expected the 2011 deficit for the year as a whole to fall to 1½ percent of GDP, implying a fiscal withdrawal of 1.8 percent of GDP.
- Authorities’ 2012 fiscal stance:
  - Fiscal deficit anticipated to increase to 2.6 percent of GDP in 2012 as expenditures pick up.
  - Planned revenue measures: improvements in tax administration, rationalization of fiscal incentives, restructuring excise tax on alcohol and tobacco.
  - If revenue gains are insufficient, authorities will reduce non-priority expenditure or speed up privatization.
  - Expenditure reorientation toward social and infrastructure priorities welcomed by Directors.
- Directors recommended further measures to reform excises, rationalize tax incentives, and broaden the tax base.

### External sector and reserves
- External headwinds affected exports, but balance of payments remained in sizable surplus due to net inflows in current and capital and financial accounts.
- Remittances, BPO exports, and capital inflows offset lower electronics exports.
- International reserves rose by nearly $13 billion during 2011 to $75.3 billion (11 months of imports).
- BSP forward book declined by about $11 billion, with most decline in September (capital reversals episode), causing a temporary drop in reserves and the exchange rate and a jump in sovereign spreads.
- For 2011 as a whole, the peso remained stable in nominal and real effective terms.
- External sector indicators (selected):
  - Current account: 3.2 percent of GDP (2011).
  - Reserves, adjusted (US$ billions): 75.3 (2011); staff projections: 84.7 (2012), 94.8 (2013).
  - Reserves/short-term liabilities, adjusted: 469.1 (2011); staff projections: 463.3 (2012), 504.0 (2013).
  - Overall balance (US$ billions): 10.9 (2011); staff projections: 7.8 (2012), 8.1 (2013).

### Growth, labor, and inclusive growth strategy
- Real GDP growth:
  - 2010: 7.6
  - 2011: 3.7
  - Staff projections: 4.2 (2012), 4.7 (2013)
- Authorities expect acceleration to 5-6 percent in 2012 on sustained public spending, timely PPP project startups, supportive monetary policy, and robust remittances.
- Authorities’ medium-term development focus (Philippine Development Plan) priorities:
  - Improving governance, infrastructure, human capital, and social safety nets, as well as access to finance.
  - Five cross-cutting strategies: (a) boosting competitiveness to generate employment; (b) improving access to financing; (c) investing massively in physical infrastructure; (d) promoting transparent and responsive governance; and (e) developing human resources through improved social services.
- 2012 National Budget priorities:
  - Significant shares allocated to Social Services and Economic Services sectors (together more than half of the 2012 National Budget).
  - Funding for PPP Strategic Support Fund for PPP ventures and preparation of business cases and feasibility studies.
- Financial inclusiveness measures:
  - BSP programs for SME and agriculture access to formal credit, microfinance, credit surety funds (CSFs), and the Economic and Financial Learning Program (EFLP).
  - BSP’s regulatory framework for microfinance rated world’s best for three years in a row.

### Executive Board assessment and recommendations
- Directors commended prudent policies underpinning a strong recovery and supporting confidence.
- Near-term outlook broadly favorable but subject to significant external risks.
- Key policy challenge: safeguard macroeconomic stability while building foundations for stronger and more inclusive growth over the medium term.
- Specific Director views/recommendations:
  - Monetary policy: responded well; enhance monetary transmission and approve central bank act amendments.
  - Exchange rate: support for allowing orderly adjustments; reserves well above precautionary metrics and could be drawn down to mitigate capital reversals; scope for further exchange rate flexibility with sustained inflows.
  - Fiscal policy: appropriately focused on near-term growth while aiming for medium-term consolidation; welcome expenditure reorientation; need higher revenue—support measures to strengthen tax administration and reform excises, tax incentives, and broaden the tax base.
  - Financial sector: take note of resilience; continue monitoring potential pressure points; strengthen supervisory, regulatory framework and AML/CFT regime.
  - Growth: support emphasis on faster and more inclusive growth; welcome focus areas in Philippine Development Plan.

### Key statistics and projections (selected figures from table)
- Real GDP growth: 4.2 (2008); 1.1 (2009); 7.6 (2010); 3.7 (2011); staff proj. 4.2 (2012); 4.7 (2013).
- CPI (annual average): 9.3 (2008); 3.2 (2009); 3.8 (2010); 4.5 (2011); staff proj. 4.0 (2012); 4.0 (2013).
- CPI (end year): 8.0 (2008); 4.3 (2009); 3.1 (2010); 4.6 (2011); staff proj. 4.4 (2012); 4.0 (2013).
- Gross investment (percent of GDP): 19.3 (2008); 16.6 (2009); 20.5 (2010); 20.8 (2011); staff proj. 20.6 (2012); 21.0 (2013).
- National saving (percent of GDP): 21.4 (2008); 22.1 (2009); 25.0 (2010); 24.0 (2011); staff proj. 22.5 (2012); 22.8 (2013).
- National government balance (authorities definition, percent of GDP): -0.9 (2008); -3.7 (2009); -3.5 (2010); -1.5 (2011); staff proj. -2.6 (2012); -2.0 (2013).
- Nonfinancial public sector balance (percent of GDP): -0.3 (2008); -3.2 (2009); -3.4 (2010); -0.6 (2011); staff proj. -2.3 (2012); -1.7 (2013).
- Revenue and grants (percent of GDP): 22.0 (2008); 19.9 (2009); 18.4 (2010); 18.3 (2011); staff proj. 18.6 (2012); 19.0 (2013).
- Expenditure (percent of GDP): 22.3 (2008); 23.1 (2009); 21.8 (2010); 18.9 (2011); staff proj. 21.0 (2012); 20.7 (2013).
- Nonfinancial public sector debt (percent of GDP): 58.2 (2008); 58.1 (2009); 53.5 (2010); 51.3 (2011); staff proj. 50.6 (2012); 48.8 (2013).
- Broad money (M3) (percent change, end of period): 10.0 (2008); 8.6 (2009); 10.9 (2010); 7.2 (2011, November 2011 year-on-year).
- Interest rate (91-day T-bill, end of period, in percent): 5.8 (2008); 4.3 (2009); 1.3 (2010); 1.7 (2011, December 2011).
- Credit to the private sector (percent change): 20.5 (2008); 10.0 (2009); 8.9 (2010); 22.5 (2011, November 2011).
- Export value (percent change): -2.5 (2008); -22.1 (2009); 34.9 (2010); -1.5 (2011); staff proj. 0.5 (2012); 3.4 (2013).
- Import value (percent change): 5.6 (2008); -24.0 (2009); 32.9 (2010); 7.7 (2011); staff proj. 2.1 (2012); 4.7 (2013).
- Current account (percent of GDP): 2.1 (2008); 5.6 (2009); 4.5 (2010); 3.2 (2011); staff proj. 1.8 (2012); 1.9 (2013).
- Direct investment (net) (US$ billions): 1.3 (2008); 1.6 (2009); 1.2 (2010); 1.0 (2011); staff proj. 1.1 (2012); 1.1 (2013).
- Overall balance (US$ billions): 0.1 (2008); 6.4 (2009); 14.3 (2010); 10.9 (2011); staff proj. 7.8 (2012); 8.1 (2013).
- Total external debt (percent of GDP): 37.6 (2008); 38.5 (2009); 36.9 (2010); 36.5 (2011); staff proj. 36.5 (2012); 36.2 (2013).

### Final observations from authorities
- Authorities view the Philippines as resilient with stronger foundations to endure external shocks due to structural reforms and home-grown sources of resilience.
- Authorities expect sustained growth in 2012 supported by simultaneous monetary and fiscal policy action, PPPs, and improved public spending implementation.
- Authorities stress commitment to fiscal sustainability and to creating fiscal space for higher investment in infrastructure and social services.

*Source: IMF staff report and Executive Board and authorities statements contained in the 2011 Article IV Consultation documents.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1249.pdf_