## IMF Executive Board Concludes 2019 Article IV Consultation with the Philippines

_IMF News, February 7, 2020_

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## Bibliographic details
- Published: February 7, 2020

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### 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.*

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## References

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- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Philippines and the IMF](http://www.imf.org/external/country/PHL/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2020/02/06/pr2035-phillipines-imf-executive-board-concludes-2019-article-iv-consultation_