Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with the Philippines







February 6, 2020















On January 27, 2020, the Executive Board of the
International Monetary Fund (IMF) concluded the 2019 Article IV
consultation

[1]

with the Philippines, and considered and endorsed the
staff appraisal without a meeting on a lapse-of-time basis.

[2]


The Philippine economy continues to perform well. Economic growth regained
momentum in the second half of 2019, following a brief slowdown in the
first half of the year. The latter primarily reflected some temporary
government underspending, combined with external trade uncertainty and a
decisive monetary policy tightening in response to the inflation spike and
overheating risks in 2018. Inflation declined through much of 2019, driven
by lower food and energy inflation, before rebounding to 2.5 percent in
December 2019. Bank lending growth has also slowed in the first half of
2019, amid increased lending rates and the dampening effect on aggregate
demand of the temporary fiscal contraction, but it has stabilized at around
10.5 percent in September 2019.

The current account deficit is expected to have declined to 1.6 percent of
GDP in 2019, down from 2.6 percent in 2018, mainly reflecting weaker
imports of goods. Gross international reserves reached US$87.9 billion as
of end‑2019, or about 200 percent of the IMF’s reserve adequacy metric,
against the backdrop of sustained portfolio inflows since late 2018. Based
on staff’s preliminary estimates, the 2019 external position is assessed as
being in line with medium-term fundamentals and desirable policy settings.

The outlook is positive. GDP growth is projected to have reached 5.7
percent in 2019

[3]

and rise to 6.3 percent in 2020, underpinned by government spending
acceleration and the recent monetary policy easing. Inflation is projected
at 3.0 percent by end‑2020, accompanied by a slight widening of the current
account deficit to 2.3 percent of GDP in 2020 as investment picks up. Risks
to the outlook are to the downside, reflecting risks to the global economy
from augmented trade tensions, shifts in global financial conditions, and
natural disasters.

The structural reform momentum and infrastructure push remain strong.
Several landmark reform bills have been signed into law recently, including
rice tariffication, a national digital ID, the ease of doing business, and
BSP charter amendments. The government has also revised the list of
priority flagship infrastructure projects based on feasibility and
cost-benefit considerations, with the objective of raising infrastructure
investment to over 6 percent of GDP by 2022.

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Executive Board Assessment

In concluding the 2019 Article IV consultation with the Philippines,
Executive Directors endorsed the staff’s appraisal, as follows:

The Philippine economy continues to be a strong performer despite recent
headwinds but faces downside risks to the outlook. Prudent policies and
structural reforms have supported economic activity and macroeconomic
stability over the past decade. Real GDP growth has regained momentum in
the second half of 2019 after a short-lived slowing and is projected to
firm up further in 2020, underpinned by government spending acceleration
and the recent monetary easing. The risks to the outlook are tilted to the
downside, however, reflecting higher risks from global trade tensions,
shifts in global financial conditions, and natural disasters.

Macroeconomic policies are attuned to the outlook. The moderate fiscal
stimulus planned for 2020 and the monetary policy easing since mid-2019 are
consistent with the economy moving back to growing at capacity and
achieving the inflation objectives in the baseline outlook.

The Philippines has policy space and could adopt a more expansionary
macroeconomic policy stance should downside risks materialize. Under these
adverse risk scenarios, fiscal stimulus should be prioritized toward public
capital and social spending programs. The Bangko Sentral ng Pilipinas (BSP)
also has substantial space to lower its policy rate if downside surprises
materialize.

The 2019 external position is, based on preliminary estimates, assessed to
be broadly in line with medium-term fundamentals and desirable policy
settings. Nonetheless, the recent rise in portfolio and other volatile
capital inflows amid declining household saving should be monitored
closely. The exchange rate should remain a primary shock absorber against
external shocks. Publishing FX intervention data could be considered, with
appropriate lags and aggregation to guard against market sensitivities.

Closing the infrastructure gap would require further reform efforts.
Enhancing public investment management, including by promoting greater
competition and allowing easier public access to information in the
procurement process, would enable the planned increase in the
infrastructure investment enveloped and contribute to its timely and
cost-effective implementation, and also reduce incidence of corruption. The
planned tax incentive reform would make the regime more accountable and
effective in encouraging investment and job creation.

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The macroprudential policy response should be proactive if risks of and
from high credit growth increase again. The BSP should timely activate the
Countercyclical capital buffer (CCyB) if risks of broad-based rapid credit
growth reemerge, develop targeted macroprudential measures, such as
loan-to-value and debt-to-income caps, and tighten them if high credit
growth risks are more sector-specific―for example, in the real estate
sector.

Building on the progress in recent years, bolder implementation efforts
would help the strong structural reform momentum bear fruit. Strengthening
the capacity of the public administration, advancing with the ease of doing
reforms, and continuing with the infrastructure push will be central in
this respect. The reform agenda could be reinforced by further lifting
restrictions on foreign direct investment, broadening the scope of poverty
reduction efforts, mobilizing more resources for climate change adaptation
and mitigation, robust implementation of the AML/CFT regime, and easing the
stringent bank secrecy law.




Philippines: Selected Economic Indicators, 2015–2020

2015

2016

2017

2018

2019

2020

Proj.

Proj.

(Annual percentage change, unless otherwise indicated)

National account

Real GDP

6.1

6.9

6.7

6.2

5.7

6.3

Consumption

6.5

7.4

5.9

6.5

6.5

6.6

Private

6.3

7.1

5.9

5.6

5.9

6.2

Public

7.6

9.0

6.2

13.0

10.0

9.3

Gross fixed capital formation

16.9

26.1

9.4

12.9

5.3

15.6

Domestic demand

8.7

11.7

6.8

8.2

6.1

9.1

Net exports (contribution to growth)

-3.1

-4.9

-0.7

-2.8

-1.1

-3.8

Real GDP per capita

4.3

5.1

5.0

4.6

4.0

4.6

Output gap (percent, +=above potential)

-0.3

0.1

0.4

0.2

-0.2

-0.1

Labor market

Unemployment rate (percent of labor force)

6.3

5.5

5.7

5.3

5.2

5.1

Underemployment rate (percent of employed persons)

18.6

18.3

16.1

16.4

14.0

Employment (percent change)

2.8

4.7

-1.6

2.0

2.4

2.5

Non-agriculture daily wages (Q4/Q4) 1/

3.2

2.1

4.3

4.9

0.0

Price

Consumer prices (period average, 2012 basket)

0.7

1.3

2.9

5.2

2.5

2.6

Consumer prices (end of period, 2012 basket)

0.7

2.2

2.9

5.1

2.5

3.0

Core consumer prices (period average, 2012 basket)

1.1

1.5

2.5

4.1

3.2

Residential real estate (Q4/Q4) 2/

3.3

5.7

0.6

10.4

Money and credit

3-month PHIREF rate (percent, end of period) 3/

2.7

2.0

3.3

6.5

3.1

Claims on private sector (percent of GDP)

41.8

44.8

47.8

49.9

50.7

52.6

Claims on private sector (percent change)

12.4

16.4

16.4

15.1

8.6

13.2

Public finances (in percent of GDP)

National government overall balance 4/

-0.9

-2.4

-2.2

-3.3

-2.7

-3.2

Revenue and grants

15.8

15.2

15.6

16.3

16.5

16.7

Total expenditure and net lending

16.7

17.6

17.9

19.6

19.2

19.9

General government gross debt

41.5

39.0

39.9

38.9

38.9

38.9

Balance of payments (in percent of GDP)

Current account balance

2.5

-0.4

-0.7

-2.6

-1.6

-2.3

FDI, net

0.0

-1.9

-2.2

-1.8

-1.4

-1.4

Gross reserves (US$ billions)

80.7

80.7

81.6

79.2

85.6

85.0

Gross reserves (percent of short-term debt, residual
maturity)

409.5

418.2

419.3

369.7

402.2

385.0

Total external debt

26.5

24.5

23.3

23.9

23.6

22.4

Memorandum items:

Nominal GDP (US$ billions)

292.8

304.9

313.6

330.9

365.0

399.7

Nominal GDP per capita (US$)

2,883

2,953

2,989

3,104

3,370

3,632

GDP (in billions of pesos)

13,322

14,480

15,808

17,426

18,614

20,302

Real effective exchange rate (2005=100)

111.4

108.2

103.4

100.5

Peso per U.S. dollar (period average)

45.5

47.5

50.4

52.7

51.8

Sources: Philippine authorities; World Bank; and IMF staff
estimates and projections.

1/ In National Capital Region.

2/ Latest observation as of 2019:Q3.

3/ Benchmark rate for the peso floating leg of a 3-month
interest rate swap.

4/ IMF definition. Excludes privatization receipts and
includes deficit from restructuring of the previous Central
Bank-Board of Liquidators.




[1]

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.


[2]

The Executive Board takes decisions under its lapse-of-time
procedure when the Board agrees that a proposal can be considered
without convening formal discussions.


[3]

The projections for the Article IV consultation were completed
before the release of the 2019 annual national account data.


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