IMF Employees Completes 2022 Article IV Mission to the Philippines

Washington, DC:
An Worldwide Financial Fund crew led by Ms. Cheng Hoon Lim performed
discussions on the Philippine financial system for the 2022 Article IV Session
from September 12‑26, 2022. On the finish of the mission, Ms. Lim issued the
following assertion:

“The Philippines has efficiently emerged from one of many world’s strictest
pandemic lockdowns, due to sustained reforms and disciplined
macroeconomic insurance policies that contained monetary vulnerabilities and
mitigated the hardships confronted by the poor.”

“Following a pointy contraction in 2020, the Philippine financial system rebounded in
late 2021 and accelerated additional within the first half of 2022, spurred by
sturdy home demand and personal funding. IMF employees venture actual GDP
to develop by 6.5 % in 2022 however to sluggish to five % in 2023 because the
confluence of world shocks weigh on the financial system within the coming months.
Inflation is predicted to rise to five.3 % in 2022, then to say no
modestly in 2023, supported by a moderation in commodity costs, and
converge to the mid‑level of the band in 2024, as tighter financial coverage
retains inflation expectations anchored.

“The outlook is topic to vital draw back dangers, the place coverage
tradeoffs between output and inflation would change into extra acute. Draw back
dangers embody a surge in COVID‑19 instances from extra extreme variants, a extra
abrupt or larger-than-expected tightening of world monetary situations, a
deepening of the worldwide slowdown, persistently excessive home inflation, and
pure disasters. On the upside, an finish to Russia’s struggle in Ukraine and
taming of inflation each domestically and globally may lay the
foundations for stronger development than at the moment envisaged.”

“Trying forward, sustaining the financial system restoration would require a give attention to
insurance policies to deal with inflationary dangers, improve fiscal and monetary
resilience to adversarial shocks, and profitable implementation of reforms to
mitigate pandemic scarring and lift productiveness development.”

“On this regard, IMF employees made the next coverage suggestions:”

· BSP has taken immediate motion to deal with inflation. Continued near-term
tightening of financial coverage is suitable to maintain inflation expectations
anchored and scale back headline inflation securely inside the BSP’s goal
vary of two‑4 %. Clear communication about inflation and BSP’s ahead
trying coverage intentions can assist scale back uncertainty and enhance coverage
transmission.

· The banking system has proven resilience, with profitability returning to
pre‑pandemic ranges whereas non^‑performing loans have elevated
solely modestly. However, draw back dangers to development and better curiosity
charges warrant shut monitoring of monetary stability dangers, particularly in
sectors which might be overleveraged. Remaining regulatory forbearance measures
ought to be allowed to lapse. Strengthening the BSP’s capability to evaluate
monetary stability dangers, amending the financial institution secrecy legislation, and strengthening
the financial institution decision framework can improve supervision and resilience.

· Ongoing efforts to enhance Anti-Cash Laundering and Counter-Terrorism
Financing (AML/CFT) effectiveness are welcome. Completion of the
Philippines Motion Plan with the Monetary Motion Process Drive (FATF) is
important to efficiently exit the FATF listing. This can assist enhance the
enterprise surroundings and encourage international direct funding.

· The federal government’s plan to undertake fiscal consolidation whereas
prioritizing increased infrastructure spending is commendable. The issuance of
the Medium-Time period Fiscal Framework that covers a 6-year horizon, past the
typical 3-year horizon, helps sign the NG’s dedication to fiscal
consolidation and financial sustainability. Fiscal consolidation ought to be
underpinned by stronger income mobilization and cost-effective authorities
spending to safe the wanted sources for the Philippines’ essential
social and growth plans. This mixed with a concrete medium time period
fiscal technique can reinforce sustainability and market confidence. If
development falls beneath the baseline, the tempo of consolidation ought to be slower
to assist the restoration.

· If draw back dangers materialize, insurance policies ought to stay nimble, and a
coordinated use of fiscal, financial, and change fee insurance policies can assist
alleviate coverage tradeoffs. Change fee flexibility stays important as a
shock absorber. However below situations of heightened volatility with sharp
and disorderly change fee depreciation, the usage of international change
intervention can alleviate inflationary pressures, relieving a number of the
strain on financial coverage and decreasing output prices. As well as, fiscal
stimulus can forestall a big unfavorable influence on output and banks can use
their capital buffers to assist credit score development.

· Accelerating reforms to boost productiveness and harness advantages from the
digital financial system can reignite funding and enhance potential development. Additional
investments in training and coaching are crucial to assist scale back
pandemic-induced losses in human capital and scale back inequality. The current
adoption of a number of key legislations to advertise international direct funding
is laudable and their efficient implementation is vital to reap advantages.
Ratification of the Regional Complete Financial Partnership (RCEP)
Settlement would facilitate entry to imports and stimulate export
diversification. Efforts to reinforce meals safety and strengthen
agricultural efficiency ought to give attention to elevating productiveness and selling
new investments within the sector. These reforms ought to be complemented by
strengthening present social safety schemes and addressing local weather
change by way of a extra built-in technique that features a carbon pricing
scheme.

“The IMF crew wish to thank officers within the authorities, the central
financial institution, different public businesses, members of the Home of Representatives and
the Senate, and representatives of the non-public sector and civil society,
for his or her constructive and open engagement.”