Philippines: Staff Report for the 2014 Article IV Consultation
IMF Staff Country Reports, August 8, 2014
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- Philippines: Staff Report for the 2014 Article IV Consultation
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Bibliographic details
- Published: August 8, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498353052.002
Key issues — Context
- Growth remains rapid, but has moderated from the 7¼ percent recorded in 2013.
- Primary growth drivers: remittances and accommodative monetary and financial conditions, despite volatile capital flows, slowing activity in the region and severe natural disasters.
- Inflation has picked up to over 4 percent.
- The current account remains in surplus.
- Local financial markets were moderately impacted by the Fed’s “taper talk and action,” weakening the peso and equity prices.
- Credit growth has quickened, especially to construction.
- Potential growth has risen to about 6?6¼ percent.
- Persistent weakness in the business climate is a risk to sustained growth and hinders job creation.
- Constraints on investment and employment: foreign ownership restrictions, inadequate infrastructure and high doing-business costs.
- Frequent natural disasters and the above constraints have kept poverty elevated, sustaining outward migration.
Outlook and risks
- Forecast: Normalizing financial conditions are forecast to ease growth to 6?6½ percent over the medium term, while keeping inflation within the band and moderating the current account surplus.
- External risks: abrupt changes in global financial conditions and a sharp growth slowdown in EMs.
- Domestic risks: excessive flow of real and financial resources to the property sector could increase volatility of asset prices and GDP growth over the longer run.
Policy recommendations
- Adopt a more restrictive policy stance to preserve macro-financial stability, while rebalancing the mix to allow higher public investment spending and implementing reforms to sustain vibrant, more inclusive growth.
- Monetary and exchange rate policy:
- Absorbing liquidity and raising official interest rates would address second-round inflation effects and potential overheating and financial stability risks.
- Allowing the exchange rate to adjust more fully to structural inflows, while smoothing the effect of cyclical flows, would limit further sustained reserve buildup.
- Financial sector and macroprudential measures:
- Addressing specific risks from real estate and large credit exposures requires further targeted measures and broadening the BSP’s mandate to include financial stability.
- Broadening the BSP’s mandate would help prevent diversion of systemic risk to shadow banking and strengthen tools to manage risks from deepening cross-border financial integration.
- Fiscal policy:
- Raising the fiscal deficit from below 1½ percent of GDP in 2013 to 2 percent of GDP in 2014 to accommodate reconstruction spending should be accompanied by tighter monetary and financial conditions.
- Mobilizing sizable additional stable revenue would ensure room for structural spending priorities while preserving fiscal prudence.
- Structural and investment-climate reforms:
- Improving the investment climate by relaxing foreign ownership limits, reducing red tape, limiting tax holidays, and reducing labor and product market rigidities would enhance competition, support PPP execution and create employment opportunities within the Philippines.
Subject tags and keywords (as listed)
- Subject: Bank credit, Banking, Budget planning and preparation, Environment, Expenditure, National accounts, Natural disasters, Public debt, Public financial management (PFM)
- Keywords: break, Budget planning and preparation, cash management, CR, debt ratio, disaster reconstruction spending, fiscal policy, GDP, Global, IMF definition, IMF-World Bank Collaboration Matrix, ISCR, Natural disasters, output gap, Philippines, private sector, public spending, short-term debt