IMF Staff Completes 2026 Article IV Mission to the Philippines

IMF News, September 25, 2026

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Mission dates: meetings in Manila from September 15 to 25, 2026; press release dated September 25, 2026.
Mission leader: Mr. Andrea Pescatori.
Recent growth performance:
- Growth slowed to 2.3 percent year-on-year in the second quarter of 2026.
GDP growth projections:
- 3.4 percent in 2026.
- 5.1 percent in 2027.
Inflation projections:
- Headline inflation projected to average 5.6 percent in 2026 and moderate to 4.1 percent in 2027.
- Core inflation expected to peak at 4.0 percent.
External sector:
- Current account deficit projected to widen to 4.8 percent of GDP in 2026 (higher oil import bill and impact of El Niño on global rice prices).

Identified near-term headwinds:
- Sharp fall in public construction investment following stricter public infrastructure project reviews.
- Weaker confidence hampering private investment.
- Natural disasters and a protracted property sector slowdown.
- Middle East war increasing costs via reliance on imported oil and gas.
Risk assessment:
- Risks to growth are tilted to the downside.
- Risks to inflation are tilted to the upside.
- Main external risks: prolonged Middle East conflict, tighter global monetary conditions, weaker remittances.
- Main domestic risks: weaker rebound in public investment and confidence, more frequent climate events, rising leverage and prolonged property downturn (financial stability risks).
- Upside scenario: faster implementation of structural and governance reforms boosting investment.

Near-term fiscal stance:
- Fiscal deficit projected to fall only slightly by 0.2 pp to 5.4 percent of GDP in 2026 and by an additional 0.3 pp in 2027.
- Fiscal tightening has been driven by delays in executing capital projects and partial reallocation of the unspent capital budget to current spending, including time-bound, targeted measures to cushion the energy shock.
Medium-term framework:
- Medium-term consolidation path targeting a deficit of 3.5 percent of GDP by 2030 is considered appropriate.
- Recommendation to anchor consolidation in concrete tax and expenditure measures and, over time, adopt a well-designed fiscal rule to strengthen fiscal credibility.
Composition of adjustment:
- Rebalance toward revenue mobilization to protect priority social spending and create space for higher public investment.
- Revenue options identified:
- Broadening the VAT base.
- Excises on luxury goods and goods detrimental to health and the environment.
- Improving governance and design of tax incentives.
- Avoiding tax amnesties.
Public financial management (PFM) reforms:
- Accelerate reforms including streamlining procurement, appraisal, and project selection.
- Adopt the draft Budget Code to improve execution of planned capital spending and restore business confidence.

Assessment:
- The Bangko Sentral ng Pilipinas (BSP)’s tightening has kept inflation expectations anchored.
- The current monetary policy stance is approximately neutral.
Guidance:
- Policy should remain nimble and data dependent.
- Further tightening should be conditional on headline inflation staying elevated and intensifying second-round effects.
- Exchange rate should continue to act as a shock absorber; intervention should be limited to smoothing abrupt movements.
- Prioritize reforms to deepen capital markets and enhance monetary policy transmission.

Systemic assessment:
- Systemic financial risks remain contained.
- Banking system described as well capitalized, profitable, and liquid.
Vulnerabilities to monitor:
- Weakening asset quality in the construction sector.
- Rising leverage among the largest corporates.
- Strong bank interconnectedness with conglomerates.
Recommendations:
- Close monitoring of the above vulnerabilities.
- Enhance financial surveillance capacity.
- Expedite operationalization of the macroprudential framework to preempt vulnerability build-up.
- Continue efforts to improve the Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) framework.

Coordinated policy response recommended.
Specific guidelines:
- If inflation expectations remain anchored, monetary policy should look through the first-round of a further commodity price shock.
- Fiscal policy should temporarily provide targeted support to vulnerable households, with a clear commitment to resume consolidation once the shock subsides.

Reforms to raise productivity, crowd in private investment, and improve education outcomes are critical to unlock growth potential and strengthen the medium-term external position.
Priority reform areas:
- Upgrade the electrical grid.
- Tap renewable energy potential.
- Effectively implement recent legislation to improve the business environment, including harnessing gains from artificial intelligence.
- Deeper regional integration in goods and services to boost growth and resilience.

Press Release No. 26/304 — IMF Staff Completes 2026 Article IV Mission to the Philippines, September 25, 2026.