## IMF Staff Concludes Visit to the Philippines

_IMF News, June 10, 2024_

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## Bibliographic details
- Published: June 10, 2024

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### Key findings
- The Philippine economy performed strongly in 2023 despite a challenging external environment.
- GDP growth moderated in 2023 to 5.5 percent, and is expected to rebound to 6.0 percent in 2024 and 6.2 percent in 2025.
- Inflation peaked at 6.0 percent in 2023 and is expected to decline to 3.4 percent in 2024.
- The Bangko Sentral ng Pilipinas (BSP) has held the policy rate at 6.5 percent after a cumulative 450 basis points hike since May 2022.
- The current account deficit is expected to narrow from 2.6 percent of GDP in 2023 to 2.1 percent in 2024.
- Reserves remain robust at US$102.7 billion in April 2024.
- Fiscal consolidation is underway but at a slower pace than initially envisaged; the fiscal deficit is projected to decline from 6.2 percent of GDP in 2023 to 3.7 percent of GDP in 2028.

### Macroeconomic outlook and risks
- Growth drivers:
  - Stronger consumption demand.
  - Higher public and private investment.
  - Recovery in exports and tourism.
- Downside risks:
  - Geoeconomic fragmentation.
  - High interest rates.
  - Climate-related shocks.
- Upside potential:
  - Efforts to attract foreign direct investment, promote business-friendly reforms, and enhance competitiveness could raise long-term growth potential.

### Inflation and monetary policy
- Recent trajectory:
  - Inflation peaked at 6.0 percent in 2023 and has since declined to within the BSP’s target band.
  - Inflation is projected to decline towards the target of 3.0 percent in the second half of the year.
- Policy stance:
  - BSP policy rate held at 6.5 percent after a cumulative 450 basis points hike since May 2022.
  - Recommendation: Monetary policy stance should remain sufficiently restrictive to firmly anchor inflation expectations.
- Measures to mitigate food-price pressures:
  - Reduction in tariffs on rice imports from 35 to 15 percent in the second half of the year.
  - Streamlining administrative procedures and removing non-tariff barriers in the importation of agricultural products.

### Fiscal policy and revenue mobilization
- Medium-Term Fiscal Program:
  - Presents a more pro-growth fiscal stance anchored around higher capital spending and a more gradual increase in revenues over the medium term.
  - Revised consolidation plan implies a reduction in the fiscal deficit from 6.2 percent of GDP in 2023 to 3.7 percent of GDP in 2028.
- Policy priorities:
  - Ensure social protection programs, universal health care coverage, and higher education outlays are appropriately enhanced.
  - Revenue mobilization is critical to sustain credible medium-term fiscal consolidation, rebuild buffers, and create space for poverty reduction efforts.
  - Tax administration improvements should be supplemented with tax policy changes, notably to improve the efficiency of value-added tax and broaden the tax base.

### External sector and reserves
- Current account:
  - Expected to narrow from 2.6 percent of GDP in 2023 to 2.1 percent in 2024, mainly due to a rise in goods exports and tourism.
- Reserves:
  - US$102.7 billion as of April 2024.

### Financial stability
- Banking sector:
  - Financial stability risks appear contained.
  - Credit growth remains healthy despite higher lending rates.
  - The banking system has strong capital and liquidity buffers.
- Risks to monitor:
  - Banks’ exposures to commercial real estate and leveraged corporates in a high interest rate environment.
- Policy recommendations:
  - Continue monitoring sectoral exposures.
  - Continue progress on improving Anti-Money Laundering and 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 and investment
- Recent reforms:
  - Measures to attract foreign investment and create a business-friendly environment, including the recently passed Public-Private Partnership Code.
  - A recent measure to facilitate foreign ownership in the renewable energy sector.
- Implementation priorities:
  - Careful selection of projects to reduce infrastructure gaps.
  - Upskilling the labor force.
  - Enhancing the capacity of local government units.
  - Promoting green finance and supporting climate change adaptation and mitigation targets.

### Mission conclusion and next steps
- The IMF team held meetings in Manila during June 4-10, 2024.
- The statement represents preliminary findings of IMF staff and does not necessarily represent the views of the IMF’s Executive Board; the mission will not result in a Board discussion.
- The IMF team looks forward to continuing the dialogue in the coming months in the context of the 2024 Article IV Consultation.

*IMF Staff Concludes Visit to the Philippines — Press Release No. 24/211, June 10, 2024.*

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## References

- [Philippines and the IMF](http://www.imf.org/external/country/PHL/index.htm)
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_Source: https://www.imf.org/en/news/articles/2024/06/10/pr-24211-philippines-imf-staff-concludes-visit_