IMF Executive Board Concludes 2024 Article IV Consultation with the Philippines
IMF News, December 20, 2024
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- Published: December 20, 2024
Overview
- On December 4, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the 2024 Article IV consultation with the Philippines.
- Press Release No. 24/478.
- Date of press release listed: December 19, 2024.
Recent economic performance
- 2022: strong post-pandemic rebound.
- 2023: Growth moderated, growing by 5.5 percent.
- First three quarters of 2024: Growth recovered to 5.8 percent, driven by strong public consumption and public construction; partially offset by El Nino and subdued private consumption.
- Inflation (year-on-year) in October 2024:
- Headline inflation: 2.3 percent.
- Core inflation: 2.4 percent.
- Current account deficit:
- 2023: narrowed to 2.7 percent of GDP from 4.5 percent.
- Narrowing expected further in 2024 amid lower commodity prices, gradual pick-up in tourism and business process outsourcing receipts.
- Banking system: has weathered the high interest environment with sufficient liquidity and capital buffers.
Staff projections (2024–25 and medium term)
- Growth:
- Expected to reach 5.8 percent in 2024.
- Expected to pick up to 6.1 percent in 2025.
- Potential output estimated between 6.0 to 6.3 percent over the medium term.
- Inflation:
- Projected to decline to 3.2 percent on average in 2024 from 6.0 percent in 2023, supported by the reduction in rice tariffs and other non‑monetary measures to reduce food prices.
- Current account deficit:
- Expected to narrow to 2.0 percent in 2024 and 1.9 percent in 2025.
- Risks to near-term growth outlook are tilted to the downside, including:
- recurrent commodity price volatility,
- new supply shocks,
- escalation of geopolitical tensions,
- monetary policy stance in advanced economies turning out to be too tight for longer,
- growth slowdown in major economies,
- major natural disasters or extreme climate events,
- stalled reform momentum or lower than expected payoffs from reforms.
Executive Board Assessment — key messages endorsed
- General appraisal:
- Authorities handled multiple external headwinds well with wide-ranging plans for high and inclusive growth.
- Growth resilient despite external shocks and unprecedented tightening in global monetary conditions.
- Authorities promptly adjusted the policy rate after the sharp increase in inflation in 2022 and initiated gradual fiscal consolidation.
- Several key reforms introduced to spur investment and promote exports.
- Growth and inflation outlook:
- Growth expected to pick up modestly in 2024-25 while inflation should remain within the Bangko Sentral ng Pilipinas (BSP)’s target range.
- Growth supported by acceleration in consumption as food prices ease and by increased investment from public investment and more accommodative financial conditions.
- 2023 external sector position assessed to be broadly in line with fundamentals and desirable policies.
- Risks to near-term growth tilted to the downside; new supply shocks and recurring commodity price volatility represent upside inflation risks.
- Monetary policy guidance:
- BSP has room to ease the policy rate gradually towards a neutral stance.
- Continued gradual reduction in the policy rate is appropriate given inflation and inflation expectations returning to target and a negative output gap.
- A data‑dependent approach and careful communication are important amid uncertainty and frequent supply-side shocks.
- Exchange rate should continue to act as a shock absorber; FXI may be appropriate under certain circumstances.
- Establishing a credible yield curve is important to develop the fixed-income market and improve monetary policy transmission.
- Financial stability and macroprudential policy:
- Systemic risks are moderate but pockets of vulnerabilities remain.
- Banking system has sufficient liquidity and capital buffers; non-performing loans are low.
- Commercial real estate: persistently high vacancies and falling rents in parts of the sector; non-performing housing loans remain elevated.
- Rapid growth in consumer loans warrants close monitoring.
- BSP should be ready to adjust macroprudential policy in line with the financial cycle and move toward a positive neutral level for the countercyclical capital buffer.
- Strengthen capacity to assess financial stability risks and resolve troubled financial institutions.
- AML/CFT:
- Significant progress made on anti-money laundering and combating the financing of terrorism (AML/CFT).
- FATF’s initial determination that the Philippines has substantially completed its action plan is welcome.
- Continued adaptation to evolving FATF requirements important ahead of the next mutual evaluation in 2027.
- Reforming the bank secrecy law will strengthen AML/CFT effectiveness and enhance BSP supervisory powers.
- Fiscal policy and public finances:
- More gradual pace of consolidation in the revised fiscal program is appropriate alongside a concrete and sustainable plan to raise tax revenues and implement expenditure reforms.
- 2025 budget proposes a broadly neutral fiscal stance to help mitigate downside risks to growth.
- Additional tax measures should be considered to create more space for priority spending.
- Tax reform priorities could include previously planned excise tax measures, enhancing value-added tax efficiency, improving tax administration, and ensuring effective control of tax incentives.
- Efforts should focus on reforming the military and uniformed personnel pension system, improving expenditure efficiency, and effectively managing fiscal risks.
- Structural reforms and medium-term potential:
- Philippines has significant potential from abundant natural resources, untapped blue economy, and a sizable demographic dividend.
- Unlocking medium-term growth depends on comprehensive and well-sequenced structural reforms coupled with strengthened social protection.
- Reforms should aim to boost job creation, enhance productivity, increase climate resilience, and reduce poverty and inequality.
- Priority areas: upgrading infrastructure; significant investments in healthcare and education; addressing land fragmentation and low productivity in agriculture; enhancing governance.
- Digitalization highlighted as an opportunity to improve access to quality education, promote financial inclusion, and enhance public spending efficiency.
Table 1 — Selected economic indicators, 2021–2026 (highlights)
- Demographic:
- Population (2023): 111.9 million.
- Life expectancy at birth (2022): 72.2.
- Poverty:
- Below $2.15 a day (2021): 3.
- Below the national poverty line (2023): 15.5.
- Inequality (2021, income shares):
- Top 10 percent: 32.5.
- Bottom 20 percent: 6.5.
- IMF quota: SDR 2,042.9 million.
- Main export products: electronics, mineral, agro-based products, equipments, and chemicals.
Selected macro series (annual unless noted)
- Real GDP (percent): 2021: 5.7; 2022: 7.6; 2023: 5.5; 2024 Est.: 5.8; 2025 Proj.: 6.1; 2026 Proj.: 6.3.
- Consumption (percent): 2021: 4.7; 2022: 7.7; 2023: 5.4; 2024 Est.: 6.0.
- Private consumption: 2021: 4.2; 2022: 8.3; 2023: 5.6; 2024 Est.: 5.2; 2025 Proj.: 6.5.
- Public consumption: 2021: 7.2; 2022: 5.1; 2023: 0.6; 2024 Est.: 6.4; 2025 Proj.: 3.0; 2026 Proj.: 3.3.
- Gross fixed capital formation (percent): 2021: 9.8; 2022: 8.2; 2023: 8.6; 2024 Est.: 8.9.
- Net exports (contribution to growth): 2021: -2.3; 2022: -2.2; 2023: 0.0; 2024 Est.: -1.0; 2025 Proj.: -1.1.
- Real GDP per capita (percent): 2021: 4.9; 2022: 6.7; 2023: 4.6; 2024 Est.: 5.0; 2025 Proj.: (not listed).
- Output gap (percent, +=above potential): 2021: -3.5; 2022: 0.4; 2023: 0.2; 2024 Est.: -0.2; 2025 Proj.: -0.1.
- Unemployment rate (percent of labor force): 2021: 7.8; 2022: 4.4; 2023: 4.0; 2024 Est.: 4.5.
- Underemployment rate (percent of employed persons): 2021: 15.9; 2022: 14.2; 2023: 12.3.
- Claims on private sector (in percent of GDP): 2021: 49.9; 2022: 48.9; 2023: 48.3; 2024 Est.: 49.3; 2025 Proj.: 50.8; 2026 Proj.: 52.2.
- Claims on private sector (yoy growth rate): 2021: 3.8; 2022: 11.1; 2023: 9.1; 2024 Est.: 11.0; 2025 Proj.: 11.9.
- National government overall balance (percent of GDP, IMF definition): 2021: -8.3; 2022: -7.2; 2023: -6.1; 2024 Est.: -5.6; 2025 Proj.: -4.6.
- Revenue and grants (percent of GDP): 2021: 15.5; 2022: 16.1; 2023: 15.7; 2024 Est.: 16.6; 2025 Proj.: 15.8.
- Total expenditure (percent of GDP): 2021: 23.8; 2022: 23.2; 2023: 21.8; 2024 Est.: 22.2; 2025 Proj.: 21.4; 2026 Proj.: 20.5.
- National government gross debt (percent of GDP): 2021: 60.4; 2022: 60.9; 2023: 60.1; 2024 Est.: 61.2; 2025 Proj.: 62.0; 2026 Proj.: 61.7.
- Current account balance (percent of GDP): 2021: -1.5; 2022: -4.5; 2023: -2.7; 2024 Est.: -2.0; 2025 Proj.: -1.9; 2026 Proj.: -1.8.
- Total external debt (percent of GDP): 2021: 27.0; 2022: 27.5; 2023: 28.7; 2024 Est.: 28.9; 2025 Proj.: 28.5.
- Gross reserves (US$ billions): 2021: 108.8; 2022: 96.1; 2023: 103.8; 2024 Est.: 113.3; 2025 Proj.: 115.9; 2026 Proj.: 117.5.
- Gross reserves (percent of short-term debt, remaining maturity): 2021: 512.3; 2022: 381.3; 2023: 384.7; 2024 Est.: 466.4; 2025 Proj.: 443.8; 2026 Proj.: 451.3.
- Nominal GDP (US$ billions): 2021: 394.1; 2022: 404.4; 2023: 437.1; 2024 Est.: 469.5; 2025 Proj.: 506.0; 2026 Proj.: 548.4.
- Nominal GDP per capita (US$): 2021: 3,580; 2022: 3,645; 2023: 3,906; 2024 Est.: 4,148; 2025 Proj.: 4,424; 2026 Proj.: 4,745.
- GDP (in billions of pesos): 2021: 19,411; 2022: 22,028; 2023: 24,319; 2024 Est.: 26,432; 2025 Proj.: 28,691; 2026 Proj.: 31,260.
- Real effective exchange rate (2010=100): 2021: 111.1; 2022: 109.3; 2023: 113.1.
- Peso per U.S. dollar (period average): 2021: 54.5; 2022: 55.6.
Policy recommendations (summarized)
- Monetary:
- Gradually ease the policy rate towards neutral with a data‑dependent approach and careful communication.
- Use the exchange rate as a shock absorber; deploy FXI under certain circumstances.
- Establish a credible yield curve to develop the fixed-income market.
- Macroprudential and financial sector:
- Monitor rapid consumer loan growth; adjust macroprudential policy as needed.
- Move toward a positive neutral level for the countercyclical capital buffer.
- Strengthen capacity to assess financial stability risks and resolve troubled institutions.
- Fiscal:
- Support gradual consolidation with a concrete, sustainable plan to raise tax revenues and implement expenditure reforms.
- Consider additional tax measures to create space for priority spending.
- Prioritize excise tax measures, VAT efficiency, tax administration improvements, and control of tax incentives.
- Reform military and uniformed personnel pension system; improve expenditure efficiency; manage fiscal risks.
- Structural reforms:
- Implement comprehensive, well-sequenced reforms to unlock medium-term potential: infrastructure upgrades; investments in healthcare and education; agricultural productivity measures; governance enhancements.
- Strengthen social protection and pursue digitalization to improve education access, financial inclusion, and public spending efficiency.
- AML/CFT:
- Continue addressing AML/CFT issues, reform bank secrecy law, and prepare for the next mutual evaluation in 2027.
International Monetary Fund — Executive Board conclusions on the 2024 Article IV consultation with the Philippines.