Washington, DC: An International Monetary Fund team led by
Mr. Shanaka Jay Peiris held meetings in Manila during May 8-12, 2023, to
discuss recent economic and financial developments and the outlook for the
Philippine economy. At the end of the visit, Mr. Peiris issued the
following statement:
“The Philippine economy has achieved one of the strongest recoveries in
emerging markets following the pandemic-related deep economic downturn. GDP
growth in 2022 recorded 7.6 percent mainly reflecting pent-up domestic
demand, and Q1 2023 growth at 6.4 percent was in line with the full-year
forecast of 6 percent. The main downside risks to the outlook continue to
be persistently high core inflation, depreciation pressures amid tighter
global conditions, geoeconomic fragmentation, and balance sheet impacts
related to higher borrowing costs. On the other hand, larger positive
spillovers from China’s reopening and a stronger than expected recovery in
investment could contribute to higher growth than currently envisaged.
“The BSP has hiked the policy rate by a cumulative 425 basis points to 6.25
percent, more than other emerging market Asian central banks. After peaking
in January 2023, headline inflation has gradually slowed in recent months,
but core inflation has remained elevated, calling for tighter-for-longer
rates. Timely imports of cheaper food items and buffer stock releases as
envisaged by the Inter-Agency Committee on Inflation and Market Outlook
(IAC-IMO) are expected to reduce still high food prices. The regional
tripartite wage setting system has served the country well and should
continue to link wage increases to productivity gains. Risks to inflation
remain on the upside, and a continued tightening bias may be appropriate
until inflation falls decisively within the 2-4 percent target range. The
current account deficit is expected to narrow to 2.5 percent of GDP in 2023
from 4.4 percent in 2022 mainly due to declining commodity prices.
“Fiscal consolidation is underway and complements monetary policy in the
tightening of the overall macroeconomic policy stance. The 2023 budget
targets a fiscal consolidation through overall spending discipline, while
focusing on education, infrastructure, food security, healthcare, and clean
energy. The authorities’ Medium-Term Fiscal Framework (MTFF) sets a clear
fiscal anchor to maintain debt sustainability. Continued efforts to enhance
revenue mobilization through tax policy and tax administration should
underpin medium-term fiscal consolidation, while securing resources for
development plans. The proposed Military and Uniformed Personnel pension
reform will be important to create fiscal space for economic and social
priorities.
“The banking system has sufficient liquidity and capital buffers, and
spillovers from the global banking turmoil have been limited. However, amid
tighter financial conditions, the corporate sector will warrant close
monitoring. Financial regulators should strengthen the resolution framework
for financial institutions and the insolvency regime for corporates. With
credit growth projected to remain healthy, regulatory forbearance measures
should be allowed to lapse as scheduled. Enhanced Anti-Money
Laundering/Combating the Financing of Terrorism (AML/CFT) effectiveness and
completion of the Philippines’ Action Plan with the Financial Action task
Force (FATF) are critical to improve the business environment and encourage
foreign direct investment.
“Scarring from the pandemic and downward revisions to global growth
projections emphasize the importance of structural reforms to raise
productivity by reducing infrastructure and education gaps, deepening
financial markets, and harnessing the digital economy. The recent opening
up of the economy to greater foreign investment and ratification of the
Regional Comprehensive Economic Partnership (RCEP) will help reap the
benefits of the demographic dividend and should be complemented by
strengthening existing social protection schemes and enhancing labor market
flexibility to facilitate resource reallocation. Addressing climate change
adaptation and mitigation through a green growth strategy could also help
develop new growth engines for the economy.
“The IMF team would like to thank officials in the government, the central
bank, other public agencies, the Speaker of the House of Representatives,
members of the Senate, and representatives of the private sector for their
constructive and open engagement. We look forward to continuing the
dialogue in the coming months in the context of the 2023 Article IV
Consultation.”
