The IMF: Making A Difference — Policy Advice
Philippines:
Less Vulnerable and Growing Faster
January 15, 2008
- Sound macroeconomic management, sustained reforms, and a healthy global economy catapult the Philippines to strongest economic performance in 20 years.
- IMF is no longer lending to the Philippines but works closely with the government to help safeguard the gains of recent years and make the economy more competitive.
In the past, the Philippines has had a number of loan programs with the Fund. However, 2006 marked an important milestone in the country's relationship with the Fund, as the government pre-paid its remaining obligations to the Fund and exited a post-program monitoring agreement-an arrangement for countries whose borrowing arrangement has expired but that still owe the Fund money.
But even though the country no longer needs the IMF's money, it continues to value engagement with the Fund. In a statement to BusinessWorld on November 27, Central Bank Governor Amando M. Tetangco, Jr., stated that "[the IMF's] expertise and research in monetary and banking practices, as well as the policy dialogue that results from Article IV consultations, continue to be very useful for us"
Annual health check-up
Near the end of 2007, an IMF Article IV mission traveled to Manila to gauge the overall economic picture (see box). In a statement to the press, the mission said the Philippines continues to reap the benefits of economic reforms. Fiscal indicators have improved markedly over the past few years while growth has been robust and inflation contained, leading the IMF to upgrade its growth forecast for 2007 to 6.7 percent of GDP, and to 6 percent for 2008.
| Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. |
"This has been a strong year for the Philippines. But going forward, there are challenges. Tax revenues in 2007 were weaker than expected. Revenues should grow as a percent of GDP to meet priority spending needs," Il Houng Lee, chief of the mission, said at the conclusion of the IMF's annual health check-up of the Philippine economy.
The Fund recently stepped up technical assistance to strengthen tax administration, public financial management, and the financial sector in the country. The Philippines has so far benefited from at least five technical assistance programs after the end of the IMF loans. "We are supporting strongly the Department of Finance and the Bureau of Internal Revenue in designing and implementing the reform program. [T]he critical part of the reform program is making progress in efficiency and in other areas," Reza Baqir, the IMF's representative in Manila, told BusinessWorld on November 27.
Reforms making a difference
The economic picture in the Philippines has not always been this rosy. A few years ago the Philippines was burdened with heavy public debt, a large fiscal deficit, and major losses at the national power company. As such it was often subject to major swings in investor sentiment.
Economic reforms were given a big push in late 2004. Since then, power tariffs have been raised, substantially reducing the National Power Corporation's losses and the cost to the taxpayer. A landmark value-added-tax (VAT) reform expanded its coverage (to include energy products in 2005) and increased the VAT rate in 2006, which helped boost much needed tax revenues. In the financial sector, a "special purpose vehicle" framework was set up to facilitate the sale of nonperforming assets. These developments have been received favorably by financial markets: the peso appreciated by almost 19 percent in 2007 and bond spreads have narrowed.
Looking to 2008
The government says it will continue its work to improve the economy: providing sound macroeconomic management and maintaining the momentum of economic reforms- particularly in the fiscal front, where it is aiming to achieve its goal of balancing the budget this year.
Deputy Governor Diwa C. Guinigundo said the government will continue to work with the Fund. "An IMF view will still be useful if only to have fresh pair of eyes to look at the situation. It will give us another side of the issue."