Press Release: IMF Approves Extension and Augmentation of EFF for the Philippines

IMF News, July 18, 1997

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Canonical URL: Press Release: IMF Approves Extension and Augmentation of EFF for the Philippines

The IMF approved a request by the government of the Philippines to extend until December 31, 1997 the current SDR 474.5 million (about US$652 million) Extended Fund Facility (EFF) credit for the Philippines, and to augment it by SDR 316.7 million (about US$435 million).
A total of SDR 508.75 million (about US$699 million) is immediately available to the Philippines.
The remaining SDR 245.95 million (about US$338 million) will be made available following a review of performance under the program and based on end-September performance criteria.
The IMF approved the current three-year EFF on June 24, 1994 in support of the Philippines’ medium-term economic and financial program; the EFF was due to expire on July 23, 1997.
The extension and augmentation made use, for the first time, of the accelerated procedures established under the Emergency Financing Mechanism (EFM).

Under the EFF-supported program, real GDP growth accelerated to 5.7 percent in 1996.
Inflationary pressures were kept under control in 1996.
Net international reserves increased to the equivalent of 2.8 months of imports.
The authorities initially treated the 1994 EFF as precautionary after an initial drawing of SDR 36.5 million (US$50 million) and anticipated no further drawings before mid-1997.
In the second quarter of 1997 the authorities faced:
- increasing turbulence in the foreign exchange market;
- slippages in fiscal performance;
- a delay in the passage of proposed tax reforms.
Contributing factors to the turbulence included a relatively rigid exchange rate, high domestic interest rates, and large inflows of external resources including unstable short-term capital.
The peso came under pressure following recent regional capital market turbulence, with pressures intensifying after the float of the Thai baht on July 2 and causing significant depletion of international reserves.
The authorities floated the peso on July 11 and supported this action with strong fiscal and monetary policies.
The government requested the EFF extension and augmentation until end-December 1997 to:
- allow passage of tax reforms and completion of the final review of the EFF;
- support the peso float to discourage speculative capital flows.

Program macroeconomic objectives for 1997 (supported by the EFF):
- Achieve economic growth of 6.3 percent after 5.7 percent in 1996.
- Reduce the average rate of inflation to 6.5 percent from 8.4 percent in 1996.
- Contain the external current account deficit to about 4½ percent of GNP after a deficit of 4.3 percent of GNP in 1996.
- Hold net international reserves equivalent to 2.1 months of imports of goods and services by the end of the year.
Monetary and exchange rate policy:
- New exchange rate policy supported by strong monetary policies.
- Interest rates will be kept high for some time until the foreign exchange market stabilizes.
- Base money growth is to be reduced to keep annual broad money growth at 23 percent, a rate consistent with the inflation and growth targets.
Fiscal policy:
- Fiscal policy will be tightened in the second half of 1997 to offset slippages in the first half.
- Target to achieve a public sector surplus of 0.3 percent of GNP for 1997, after a surplus of 0.1 percent of GNP in 1996.
- Fiscal tightening will include revenue-enhancing measures as well as expenditure cuts.
Structural measures:
- Passage of the remaining elements of the Comprehensive Tax Reform Package to strengthen savings performance.
- Strengthening the financial system through:
- tightened limits on banks' exposure to the real estate market;
- new liquidity requirements to discourage the growth of foreign currency liabilities;
- removing tax disincentives to peso deposits.

The Philippines joined the IMF on December 27, 1945, and its quota is SDR 633.4 million (about US$871 million).
Its outstanding use of IMF financing currently totals SDR 188 million (about US$258 million).

Real GDP growth:
- 1994: 4.4
- 1995: 4.8
- 1996: 5.7
- 1997*: 6.3
Consumer prices (year average):
- 1994: 9.1
- 1995: 8.1
- 1996: 8.4
- 1997*: 6.5
Consolidated public sector balance (deficit-):
- 1994: -0.6
- 1995: -0.1
- 1996: 0.1
- 1997*: 0.3
External current account balance (deficit-):
- 1994: -4.5
- 1995: -4.3
- 1996: -4.6
- 1997*: (no figure shown in source table)
Net international reserves (Months of imports):
- 1994: 2.7
- 1995: 2.2
- 1996: 2.8
- 1997*: 2.1
Sources: Philippine authorities; and IMF staff estimates.
* Program.

International Monetary Fund press release (Press Release No. 97/33, July 18, 1997).