IMF Staff Completes Virtual 2021 Article IV Mission to the Philippines

IMF News, June 15, 2021

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An IMF team led by Mr. Thomas Helbling conducted virtual discussions on the Philippine economy for the 2021 Article IV Consultation from May 21 to June 11, 2021.
At the end of the virtual mission, Mr. Helbling issued a statement summarizing preliminary findings and assessments.
Press Release No. 21/177.

The Philippine economy is gradually recovering after the pandemic‑induced economic downturn in 2020.
Real GDP is projected to expand by 5.4 percent in 2021 and 7.0 percent in 2022.
The rebound is expected to strengthen in the second half of 2021 and in 2022, driven by continued easing of quarantine measures, progress in vaccinations, and macroeconomic policy support.
Uncertainty around the pace of the economic recovery is high; the balance of risks to economic activity is tilted toward the downside.

Downside risks:
- Supply constraints could lead to delays in vaccinations, increasing the risk of virus resurgence and tightening quarantine measures.
- External shocks, such as rising global interest rates and inflation, could constrain the monetary policy response and raise financing costs for the public and private sector.
Upside potential:
- A reinvigorated infrastructure push with greater private sector participation and a stronger global recovery could help accelerate growth.

The current macroeconomic policy settings are appropriate.
Monetary policy should remain accommodative given the temporary nature of the recent inflation uptick.
The present monetary policy setting is appropriate as the current inflation pressure appears to be temporary and is likely to taper off in the second half of the year.

Fiscal policy in 2021 should continue to be flexible in supporting the short term needs of the healthcare system and affected families and businesses.
The fiscal deficit targeted in the 2021 budget provides significant stimulus to economic activity, but more resources could be needed given the imperative to beat the virus and continued difficulties faced by vulnerable families and businesses.
Additional fiscal resources should aim to:
- Bolster the healthcare system to accelerate vaccinations.
- Strengthen capacity for testing, tracing, isolation, and treatment.
- Support affected families and businesses.
A medium‑term fiscal strategy should underpin the eventual rebuilding of fiscal space.

Liquidity and capital in the banking system have remained strong, as banks have benefitted from past reforms and policy support at the onset of the pandemic.
The full impact of the pandemic is yet to manifest; continued vigilance is needed to safeguard financial stability.
Policy recommendations to support financial stability and revive credit growth:
- Expand the macroprudential toolkit to enhance the resilience of the financial system.
- Faster implementation of the credit guarantee scheme and FIST, together with expected passage of GUIDE, would help recovery in bank credit, especially to micro, small and medium-sized enterprises.
- Continue strengthening the Philippines’ anti‑money laundering/combatting the financing of terrorism regime to avoid potential grey-listing by the Financial Action Task Force.

To rekindle investment and revert to strong pre‑pandemic growth rates, maintain the momentum of structural reforms.
Progress already achieved includes tax reform, digital payments, cutting red tape, and climate mitigation and adaptation.
Continued and sustained efforts needed to:
- Reduce restrictions on foreign investment.
- Fast‑track the rollout of the national ID.
- Scale up social protection.
- Strengthen healthcare and education.
- Implement climate change commitments.
These reforms will help the Philippines build back better and position the country for a more equitable and greener future.

The IMF team exchanged views with officials of Bangko Sentral ng Pilipinas, the economic cluster of the government, and other public and private sector representatives.
Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

Press Release No. 21/177 — IMF Communications Department, June 15, 2021.