The Philippine economy continues to defy external challenges, with robust growth projected for 2024 and 2025, according to the International Monetary Fund (IMF).
Resilient Growth Amid Turbulence
In its assessment following a visit to Manila, the IMF team led by Elif Arbatli Saxegaard commended the country’s strong economic performance. Despite global shocks, inflationary pressures, and slowing consumption, the Philippine economy grew by 5.5% in 2023. The IMF expects growth to rebound to 6.0% in 2024 and 6.2% in 2025, driven by stronger domestic demand, higher investment, and a recovery in exports.
Inflation Risks Persist
While inflation has declined from its peak in 2023, the IMF cautioned that risks remain tilted to the upside due to geopolitical tensions and commodity price volatility. The Bangko Sentral ng Pilipinas (BSP) has addressed inflationary pressures by holding the policy rate at 6.5% after a cumulative 450 basis point hike since May 2022. The IMF advised the BSP to maintain a sufficiently restrictive policy stance to firmly anchor inflation expectations.
Fiscal Consolidation and Revenue Mobilization
Fiscal consolidation is underway in the Philippines, though at a slower pace than initially envisaged. The IMF emphasized the importance of revenue mobilization to support inclusive growth, strengthen debt sustainability, and create space for poverty reduction efforts. Tax administration improvements and policy changes, such as improving the efficiency of the value-added tax and broadening the tax base, were recommended.
Financial Stability and Structural Reforms
The IMF noted that financial stability risks appear contained, with the banking system having strong capital and liquidity buffers. However, banks’ exposures to commercial real estate and leveraged corporates warrant close monitoring in the current high interest rate environment. The IMF also highlighted the importance of continued progress in improving anti-money laundering and combating the financing of terrorism (AML/CFT) effectiveness.
Recent reforms to attract foreign investment and create a business-friendly environment aim to diversify the economy and develop the country’s growth potential. The IMF emphasized the need for careful project selection, upskilling the labor force, enhancing local government capacity, and promoting green finance and climate change adaptation and mitigation efforts.
The IMF team expressed gratitude for the constructive engagement with Philippine officials and looked forward to continuing the dialogue in the context of the 2024 Article IV Consultation.