IMF Staff Concludes Visit to the Philippines

IMF News, May 22, 2025

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IMF team led by Ms. Elif Arbatli Saxegaard held meetings in Manila during May 14-20, 2025.
Mission will not result in a Board discussion; views expressed are those of IMF staff.
Statement issued May 22, 2025.

GDP growth projections:
- 5.5 percent in 2025
- 5.8 percent in 2026 ("next year")
Risks:
- Downside risks warranted close attention, driven mainly by external factors and the weaker-than-expected outturn in the first quarter.
- Announced US tariffs expected to have a limited direct impact but contribute to higher global policy uncertainty and lower growth in major economies.
Current account and reserves:
- Current account deficit projected to narrow from 3.8 percent of GDP in 2024 to 3.4 percent of GDP in 2025.
- Reserves have declined since peaking in September 2024 but remain adequate at $105.3 billion as of April 2025.

Recent inflation outcomes:
- Headline inflation fell to 1.4 percent (y/y) in April 2025.
- Core inflation declined to 2.2 percent.
Projections and risks:
- Inflation projected to stay near the lower end of the target band at 2.2 percent in 2025.
- Risks of higher inflation: adverse weather and other supply shocks, potential disruptions in global supply chains, and risk-off shocks contributing to currency depreciation.
- Risks of lower inflation: weaker global demand prospects and excess capacity in certain sectors, including through lower commodity prices.
Monetary policy guidance:
- The Bangko Sentral ng Pilipinas (BSP) has room to continue to reduce the policy rate and firmly move to a neutral stance.
- Prospect of further monetary easing and lower food prices expected to underpin recovery in consumption.
Market and transmission reforms welcomed:
- Reforms include launch of the interest rate swap market, enhanced Primary Dealer System, and consolidation of bond issuance into fewer but benchmark-sized instruments to enhance monetary policy transmission.

Fiscal outcomes and stance:
- Fiscal deficit declined from 6.1 percent of GDP in 2023 to 5.7 percent in 2024.
- Overall fiscal stance expected to be broadly neutral in 2025.
Policy priorities and recommendations:
- Adhering to the medium-term fiscal consolidation path remains critical.
- Need for a sustainable plan to raise tax revenues and implement expenditure reforms to meet deficit targets and create space for priority spending.
- Tax reform options to prioritize:
- raising excise taxes
- enhancing VAT efficiency
- improving tax administration
- ensuring effective control of tax incentives
- Continue efforts to enhance public financial management and manage fiscal risks.
- Enhance capacity at the local government level to execute additional spending responsibilities in line with higher revenues allocated through decentralization.

Systemic assessment:
- Systemic financial risks remain contained.
- Credit growth remains healthy.
- Banking system has strong capital and liquidity buffers.
Areas for continued monitoring:
- Banks’ exposures to commercial and residential real estate.
- Exposures to leveraged non-bank financial institutions.
- Fast-growing consumer credit market.
Macroprudential and supervisory recommendations:
- Adjust macroprudential policy as credit picks up, including moving toward a positive neutral level for the countercyclical capital buffer to help preempt buildup of vulnerabilities.
Regulatory progress:
- Important progress on AML/CFT issues, exemplified by the Philippines’ exit from the Financial Action Task Force (FATF) grey list in February 2025; momentum should be maintained.

Country strengths:
- Significant potential with a sizable demographic dividend and abundant natural resources.
Ongoing reforms and recommended complements:
- Reforms underway to reduce infrastructure, health and education gaps, promote foreign direct investment, and diversify export markets.
- Complementary actions recommended:
- strengthen social protection programs
- promote digitalization
- increase resilience to climate shocks and natural disasters

The IMF team thanked government, central bank, other public agencies, and private sector representatives for constructive engagement.
Continued dialogue expected in the coming months in the context of the 2025 Article IV Consultation.

IMF Staff Concludes Visit to the Philippines, May 22, 2025.