## IMF Staff Concludes Visit to the Philippines

_IMF News, May 12, 2023_

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## Bibliographic details
- Published: May 12, 2023

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### Economic outlook and growth
- The mission covered meetings in Manila during May 8-12, 2023.
- The Philippine economy achieved one of the strongest recoveries in emerging markets following the pandemic-related downturn.
- GDP growth in 2022 recorded 7.6 percent, reflecting pent-up domestic demand.
- Q1 2023 growth was 6.4 percent and was in line with the full-year forecast of 6 percent.
- Main downside risks to the outlook:
  - Persistently high core inflation.
  - Depreciation pressures amid tighter global conditions.
  - Geoeconomic fragmentation.
  - Balance sheet impacts related to higher borrowing costs.
- Upside scenarios:
  - Larger positive spillovers from China’s reopening.
  - A stronger than expected recovery in investment.

### Inflation, monetary policy, and external balances
- The Bangko Sentral ng Pilipinas (BSP) has hiked the policy rate by a cumulative 425 basis points to 6.25 percent.
- Headline inflation peaked in January 2023 and has gradually slowed in recent months, but core inflation remains elevated.
- Policy guidance:
  - Elevated core inflation calls for tighter-for-longer rates.
  - A continued tightening bias may be appropriate until inflation falls decisively within the 2-4 percent target range.
- Measures to address food inflation:
  - Timely imports of cheaper food items.
  - Buffer stock releases as envisaged by the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO).
- Current account projection:
  - 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 and public finances
- Fiscal consolidation is underway and complements monetary tightening.
- The 2023 budget targets 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.
- Policy recommendations:
  - Continue medium-term fiscal consolidation while enhancing targeted social spending.
  - Enhance revenue mobilization through tax policy and tax administration to underpin medium-term consolidation.
  - Secure resources for development plans.
  - Implement the proposed Military and Uniformed Personnel pension reform to create fiscal space for economic and social priorities.

### Financial sector resilience and supervision
- The banking system has sufficient liquidity and capital buffers.
- Spillovers from global banking turmoil have been limited, but tightening financial conditions warrant close monitoring of the corporate sector.
- Recommendations for financial stability:
  - Strengthen the resolution framework for financial institutions.
  - Strengthen the insolvency regime for corporates.
  - Allow regulatory forbearance measures to lapse as scheduled if credit growth remains healthy.
  - Enhance Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) effectiveness and complete the Philippines’ Action Plan with the Financial Action Task Force (FATF) to improve the business environment and encourage foreign direct investment.

### Structural reforms, labor, and climate
- Scarring from the pandemic and downward revisions to global growth projections highlight the need for structural reforms to raise productivity.
- Priorities include:
  - Reducing infrastructure and education gaps.
  - Deepening financial markets.
  - Harnessing the digital economy.
- Trade and investment policy notes:
  - Recent opening up to greater foreign investment and ratification of the Regional Comprehensive Economic Partnership (RCEP) will help reap demographic dividends.
  - These should be complemented by strengthening social protection schemes and enhancing labor market flexibility to facilitate resource reallocation.
- Climate policy:
  - Address climate change adaptation and mitigation through a green growth strategy to develop new growth engines.

### Mission engagement and follow-up
- The IMF team thanked government, central bank, other public agencies, the Speaker of the House of Representatives, members of the Senate, and private sector representatives for constructive engagement.
- The mission looks forward to continuing the dialogue in the coming months in the context of the 2023 Article IV Consultation.

*Source: IMF staff end-of-mission statement (May 12, 2023).*

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_Source: https://www.imf.org/en/news/articles/2023/05/12/pr23148-philippines-imf-staff-concludes-visit_