IMF Staff Completes Virtual 2021 Article IV Mission to the Philippines

June 15, 2021

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after discussions with the authorities and other stakeholders in a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. 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.

  • The Philippine economy is gradually recovering after the pandemic-induced economic downturn in 2020. The rebound is expected to strengthen in the second half of 2021 and in 2022, with real GDP projected to grow by 5.4 percent in 2021 and 7.0 percent in 2022.
  • The current macroeconomic policy settings are appropriate. Monetary policy should remain accommodative given the temporary nature of the recent inflation uptick, while fiscal policy in 2021 should continue to be flexible in supporting the short term needs of the healthcare system and affected families and businesses.
  • To maintain financial stability and build back better, continued efforts are needed to monitor financial sector risks, accelerate structural reforms, and reinvigorate the infrastructure investment program for a more equitable and greener future, while rebuilding policy buffers over the medium term.

Washington, DC: An International Monetary Fund (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 the following statement:

“The authorities have deployed a comprehensive policy support package to address the sharp economic downturn following the strict containment measures imposed to slow the spread of the coronavirus and to reduce the pressure on the healthcare system. The policy support mitigated the hardship suffered by affected families and businesses and helped safeguard macro-financial stability.

“The economy is recovering gradually as quarantine measures are eased. The recovery that began in the third quarter of 2020 should gain momentum. Real GDP is projected to expand by 5.4 percent in 2021 and 7.0 percent in 2022, due to continued easing of quarantine measures, progress in vaccinations, and macroeconomic policy support.

“Uncertainty around the pace of the economic recovery is high, and the balance of risks to economic activity is tilted toward the downside. Supply constraints could lead to delays in vaccinations, which in turn would increase the risk of virus resurgence after the recent second wave and tightening quarantine measures. Also, it could amplify the effect of external shocks, such as rising global interest rates and inflation, that would constrain the monetary policy response and raise financing costs for the public and private sector. On the other hand, a reinvigorated infrastructure push with greater private sector participation and a stronger global recovery could help accelerate growth.

“For the recovery to take hold, monetary policy should remain accommodative. While the recent spikes in inflation should be closely monitored, 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.

“Timely implementation of fiscal support—with flexibility to address evolving priorities—is crucial for continued recovery. The fiscal deficit targeted in the 2021 budget provides significant stimulus to economic activity, but given the imperative to beat the virus and the continued difficulties faced by vulnerable families and businesses, more resources could be needed. Such resources should aim to bolster the healthcare system to accelerate vaccinations, strengthen capacity for testing, tracing, isolation, and treatment, and support affected families and businesses. A medium‑term fiscal strategy should underpin the eventual rebuilding of fiscal space.

“Maintaining financial stability and reviving credit growth will be critical to continued recovery. 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. However, the full impact of the pandemic is yet to manifest itself, and continued vigilance is needed to safeguard financial stability. To this end, an expansion of the macroprudential toolkit would help 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. Moreover, to avoid potential grey-listing by the Financial Action Task Force, it is urgent to continue strengthening the Philippines’ anti‑money laundering/combatting the financing of terrorism regime.

“To rekindle investment and revert to its strong pre‑pandemic growth rates, the Philippines needs to maintain the momentum of structural reforms. Important progress has been made on many fronts, such as tax reform, digital payments, cutting red tape, and climate mitigation and adaptation. However, sustained efforts will be needed to reduce restrictions on foreign investment, fast‑track the rollout of the national ID, scale up social protection, strengthen healthcare and education, and 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. The team would like to thank the authorities and other stakeholders for the frank and constructive discussions in the virtual meetings, and the excellent logistical support.”

IMF Communications Department

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