MANILA – The Philippine economy is holding its ground in turbulent global waters, according to a new report from the International Monetary Fund. Wrapping up a week-long visit to Manila, IMF staff led by Elif Arbatli Saxegaard offered a cautiously optimistic view: growth remains solid, inflation is under control, and the central bank has room to cut rates—but risks, both global and domestic, still loom large.
Growth Forecasts with Caveats
The IMF projects Philippine GDP to expand by 5.5% in 2025 and accelerate slightly to 5.8% in 2026. That’s a respectable performance in a world beset by policy uncertainty, sluggish major economies, and new U.S. tariffs that, while not directly threatening the Philippines, contribute to global jitters.
Still, the picture isn’t flawless. Investment remains tepid, and a weaker-than-expected first quarter adds to downside risks. The current account deficit is set to narrow modestly—from 3.8% of GDP in 2024 to 3.4% next year—helped by softer global commodity prices. Foreign exchange reserves, though down from their 2024 peak, remain robust at $105.3 billion.
Room for Easing at the Central Bank
Inflation is falling fast—down to just 1.4% in April—thanks to last year’s rate hikes and a decisive government push to tame food prices, including a rice tariff cut. With core inflation at 2.2% and expectations well-anchored, the IMF believes the Bangko Sentral ng Pilipinas (BSP) can keep easing rates to support domestic demand.
Even so, risks linger. Currency pressure could mount if global markets turn risk-averse. Supply disruptions or erratic weather could also reignite food inflation. On the flip side, weaker global demand could push prices lower still.
Fiscal Health Holds, but Reform Needed
On the fiscal front, the deficit shrank to 5.7% of GDP in 2024, down from 6.1% a year earlier. The IMF praised Manila’s commitment to a medium-term consolidation path but urged more work on tax reform and spending efficiency. Suggested moves include higher excise taxes, better VAT collection, tighter control of tax incentives, and stronger local government capacity to manage devolved responsibilities.
Financial Stability in Focus
The country’s banking system remains well-capitalized, with credit growth in healthy territory. But the IMF warns of potential hotspots: real estate exposures, non-bank lenders, and rising consumer credit. Adjusting macroprudential tools, like the countercyclical capital buffer, could help contain brewing vulnerabilities.
One clear win: the Philippines’ exit from the Financial Action Task Force’s grey list this February, signaling progress on anti-money laundering efforts.
Reform Momentum Still Matters
The IMF also highlighted the country’s long-term potential, driven by its young population and natural resource base. Ongoing reforms in infrastructure, education, and digitalization are promising, but the Fund cautions that broader efforts—on social protection, climate resilience, and export diversification—are needed to unlock growth.