IMF Executive Board Concludes 2019 Article IV Consultation with the Philippines
IMF News, February 7, 2020
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- Published: February 7, 2020
Executive Board assessment and overall findings
- The Executive Board concluded the 2019 Article IV consultation on January 27, 2020, and endorsed the staff appraisal on a lapse-of-time basis.
- The Philippine economy "continues to be a strong performer despite recent headwinds" but faces downside risks to the outlook from "global trade tensions, shifts in global financial conditions, and natural disasters."
- Macroeconomic policies are described as "attuned to the outlook": a moderate fiscal stimulus planned for 2020 and monetary policy easing since mid-2019 are viewed as consistent with the economy moving back to capacity and achieving inflation objectives.
- The Board noted that the Philippines "has policy space and could adopt a more expansionary macroeconomic policy stance should downside risks materialize."
- Under adverse scenarios, fiscal stimulus should be prioritized toward public capital and social spending programs.
- The Bangko Sentral ng Pilipinas (BSP) has substantial space to lower its policy rate if downside surprises materialize.
Macroeconomic performance and outlook (growth, inflation, credit)
- Recent performance:
- Economic growth regained momentum in the second half of 2019 after a brief slowdown in the first half of the year.
- Inflation declined through much of 2019 before rebounding to 2.5 percent in December 2019.
- Bank lending growth slowed in the first half of 2019 but stabilized at around 10.5 percent in September 2019.
- Projections:
- Real GDP growth is projected to have reached 5.7 percent in 2019 and to rise to 6.3 percent in 2020.
- Inflation is projected at 3.0 percent by end‑2020.
- The current account deficit is projected to widen slightly to 2.3 percent of GDP in 2020 as investment picks up.
- Risks:
- Risks to the outlook are tilted to the downside, particularly from augmented trade tensions, shifts in global financial conditions, and natural disasters.
External sector and reserves
- The current account deficit is expected to have declined to 1.6 percent of GDP in 2019, down from 2.6 percent in 2018, mainly reflecting weaker imports of goods.
- Gross international reserves reached US$87.9 billion as of end‑2019, or about 200 percent of the IMF’s reserve adequacy metric, against the backdrop of sustained portfolio inflows since late 2018.
- Based on staff’s preliminary estimates, the 2019 external position is assessed as being in line with medium-term fundamentals and desirable policy settings.
- The Board highlighted monitoring needs:
- The recent rise in portfolio and other volatile capital inflows amid declining household saving should be monitored closely.
- The exchange rate should remain a primary shock absorber against external shocks.
- Publishing FX intervention data could be considered, with appropriate lags and aggregation to guard against market sensitivities.
Fiscal and public investment recommendations
- Closing the infrastructure gap requires further reform efforts and stronger public investment management.
- Promote greater competition and allow easier public access to information in the procurement process to enable planned increases in infrastructure investment and improve timeliness and cost-effectiveness, and reduce incidence of corruption.
- The government revised the list of priority flagship infrastructure projects with the objective of raising infrastructure investment to over 6 percent of GDP by 2022.
- The planned tax incentive reform would make the regime more accountable and effective in encouraging investment and job creation.
- Fiscal stance:
- National government overall balance (percent of GDP): -0.9 (2015), -2.4 (2016), -2.2 (2017), -3.3 (2018), -2.7 (2019), -3.2 (2020).
Financial sector and macroprudential policy
- Macroprudential recommendations:
- Be proactive if risks of and from high credit growth increase again.
- BSP should timely activate the Countercyclical capital buffer (CCyB) if risks of broad-based rapid credit growth reemerge.
- Develop targeted macroprudential measures, such as loan-to-value and debt-to-income caps, and tighten them if high credit growth risks are sector-specific (for example, in the real estate sector).
- Credit and monetary indicators:
- Claims on private sector (percent of GDP): 41.8 (2015), 44.8 (2016), 47.8 (2017), 49.9 (2018), 50.7 (2019), 52.6 (2020).
- Claims on private sector (percent change): 12.4 (2015), 15.1 (2016), 8.6 (2017), 13.2 (2018).
- 3-month PHIREF rate (percent, end of period): 2.7 (2015), 3.1 (2016).
Structural reforms and broader policy priorities
- Recent laws and reforms cited as reinforcing structural momentum:
- Rice tariffication, a national digital ID, ease of doing business reforms, and BSP charter amendments.
- Further recommended reform actions to reinforce the agenda:
- Strengthen the capacity of the public administration.
- Advance ease of doing business reforms.
- Continue the infrastructure push.
- Further lift restrictions on foreign direct investment.
- Broaden the scope of poverty reduction efforts.
- Mobilize more resources for climate change adaptation and mitigation.
- Robust implementation of the AML/CFT regime.
- Ease the stringent bank secrecy law.
Key statistics from "Philippines: Selected Economic Indicators, 2015–2020"
- Real GDP (annual percent change): 6.1 (2015), 6.9 (2016), 6.7 (2017), 6.2 (2018), 5.7 (2019), 6.3 (2020 Proj.).
- Consumption (annual percent change): 6.5 (2015), 7.4 (2016), 5.9 (2017), 6.6 (2018).
- Private consumption (annual percent change): 7.1 (2015), 5.6 (2016).
- Public consumption (annual percent change): 7.6 (2015), 9.0 (2016), 13.0 (2017), 10.0 (2018), 9.3 (2019).
- Gross fixed capital formation (annual percent change): 16.9 (2015), 26.1 (2016), 9.4 (2017), 12.9 (2018), 5.3 (2019), 15.6 (2020).
- Domestic demand (annual percent change): 8.7 (2015), 11.7 (2016), 6.8 (2017), 8.2 (2018), 9.1 (2019).
- Net exports (contribution to growth): -3.1 (2015), -4.9 (2016), -0.7 (2017), -2.8 (2018), -1.1 (2019), -3.8 (2020).
- Real GDP per capita (annual percent change): 4.3 (2015), 5.1 (2016), 5.0 (2017), 4.6 (2018), 4.0 (2019).
- Output gap (percent, +=above potential): -0.3 (2015), 0.1 (2016), 0.4 (2017), 0.2 (2018), -0.2 (2019), -0.1 (2020).
- Unemployment rate (percent of labor force): 5.5 (2015), 5.2 (2016).
- Underemployment rate (percent of employed persons): 18.6 (2015), 18.3 (2016), 16.1 (2017), 16.4 (2018), 14.0 (2019).
- Employment (percent change): 2.8 (2015), 4.7 (2016), -1.6 (2017), 2.0 (2018), 2.4 (2019), 2.5 (2020).
- Non-agriculture daily wages (Q4/Q4, National Capital Region): 3.2 (2015), 2.1 (2016), 4.9 (2017), 0.0 (2018).
- Consumer prices (period average, 2012 basket): 0.7 (2015), 1.3 (2016), 2.9 (2017), 2.6 (2018).
- Consumer prices (end of period, 2012 basket): 2.2 (2015), 3.0 (2016).
- Core consumer prices (period average, 2012 basket): 1.1 (2015), 1.5 (2016), 4.1 (2017).
- Residential real estate (Q4/Q4, latest observation as of 2019:Q3): 3.3 (2015), 0.6 (2016), 10.4 (2017).
- Public finances (in percent of GDP):
- Revenue and grants: 15.8 (2015), 15.2 (2016), 16.3 (2017), 16.5 (2018), 16.7 (2019).
- Total expenditure and net lending: 17.6 (2015), 17.9 (2016), 19.6 (2017), 19.2 (2018), 19.9 (2019).
- General government gross debt: 41.5 (2015), 39.0 (2016), 39.9 (2017), 38.9 (2018).
- Balance of payments (in percent of GDP):
- Current account balance: -0.4 (2015), -2.6 (2018), -2.3 (2019).
- FDI, net: -1.9 (2015), -1.8 (2016), -1.4 (2017).
- Gross reserves (US$ billions): 80.7 (2015), 81.6 (2016), 79.2 (2017), 85.6 (2018), 85.0 (2019).
- Gross reserves (percent of short-term debt, residual maturity): 409.5 (2015), 418.2 (2016), 419.3 (2017), 369.7 (2018), 402.2 (2019), 385.0 (2020).
- Total external debt: 26.5 (2015), 24.5 (2016), 23.3 (2017), 23.9 (2018), 23.6 (2019), 22.4 (2020).
- Memorandum items:
- Nominal GDP (US$ billions): 292.8 (2015), 304.9 (2016), 313.6 (2017), 330.9 (2018), 365.0 (2019), 399.7 (2020).
- Nominal GDP per capita (US$): 2,883 (2015), 2,953 (2016), 2,989 (2017), 3,104 (2018), 3,370 (2019), 3,632 (2020).
- GDP (in billions of pesos): 13,322 (2015), 14,480 (2016), 15,808 (2017), 17,426 (2018), 18,614 (2019), 20,302 (2020).
- Real effective exchange rate (2005=100): 111.4 (2015), 108.2 (2016), 103.4 (2017), 100.5 (2018).
- Peso per U.S. dollar (period average): 45.5 (2015), 47.5 (2016), 50.4 (2017), 52.7 (2018), 51.8 (2019).
Press Release No. 20/35 — IMF Communications Department, February 6, 2020.
