IMF Staff Completes 2021 Virtual Article IV Mission to the Philippines
June 15, 2021
End-of-mission press releases include statements from staff teams that convey preliminary findings after discussions with the authorities and other stakeholders in a country. The views expressed in this statement are those of the staff of the IMF and do not necessarily represent those of the Executive Board of the IMF. Based on the preliminary findings of this mission, staff will prepare a report which, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
- The Philippine economy is gradually recovering after the economic slowdown induced by the pandemic in 2020. The rebound is expected to strengthen in the second half of 2021 and in 2022, with real GDP expected to grow by 5.4% in 2021 and 7.0% in 2022.
- The current macroeconomic policy parameters are appropriate. Monetary policy is expected to remain accommodative given the temporary nature of the recent rise in inflation, while fiscal policy in 2021 is expected to remain flexible to meet the short-term needs of the healthcare system and affected families and businesses.
- To maintain financial stability and rebuild better, continued efforts are needed to monitor financial sector risks, accelerate structural reforms, and re-energize the infrastructure investment program for a fairer and greener future, while rebuilding margins. medium-term maneuver.
An International Monetary Fund (IMF) team led by Mr. Thomas Helbling conducted virtual discussions on the Philippine economy for the 2021 Article IV consultation from May 21 to June 11, 2021. At the end of the mission virtual, Mr. Helbling released the following statement:
“Authorities have deployed a comprehensive policy support program to deal with the severe economic recession following the strict containment measures imposed to slow the spread of the coronavirus and reduce pressure on the healthcare system. Political support alleviated the hardships faced by affected families and businesses and helped preserve macro-financial stability.
“The economy is gradually recovering as quarantine measures are relaxed. The recovery that began in the third quarter of 2020 is expected to accelerate. Real GDP is expected to grow 5.4% in 2021 and 7.0% in 2022, due to continued easing of quarantine measures, advances in vaccinations and support for macroeconomic policy.
“The uncertainty surrounding the pace of the economic recovery is high and the balance of risks to economic activity is tilted down. Supply constraints could lead to delays in vaccinations, which in turn would increase the risk of a resurgence of the virus after the recent second wave and the tightening of quarantine measures. In addition, it could amplify the effect of external shocks, such as rising global interest rates and inflation, which would limit monetary policy response and increase financing costs for the public and private sectors. On the other hand, a revival of infrastructure with greater private sector participation and a stronger global recovery could help accelerate growth.
“For the recovery to take hold, monetary policy must remain accommodative. While recent spikes in inflation should be watched closely, the current monetary policy framework is appropriate as current inflationary pressure appears to be temporary and is expected to ease in the second half of the year.
“Timely implementation of budget support – with the flexibility to respond to changing priorities – is crucial for the continued recovery. The budget deficit targeted in Budget 2021 is a significant boost to economic activity, but given the imperative to beat the virus and the lingering challenges facing vulnerable families and businesses, more resources may be needed. These resources should be aimed at strengthening the health system to speed up vaccinations, build capacity for testing, tracing, isolation and treatment, and supporting affected families and businesses. A medium-term fiscal strategy should underpin the eventual reconstruction of fiscal space.
“Maintaining financial stability and relaunching credit growth will be critical to the continued recovery. The liquidity and capital of the banking system remained strong, as banks benefited from past reforms and political support at the start of the pandemic. However, the full impact of the pandemic has not yet manifested and continued vigilance is needed to preserve financial stability. To this end, a broadening of the macroprudential toolbox would help strengthen the resilience of the financial system. A faster implementation of the credit guarantee system and FIST, as well as the expected adoption of GUIDE, would contribute to the recovery of bank lending, in particular to micro, small and medium enterprises. In addition, to avoid possible inclusion on the Financial Action Task Force’s gray list, there is an urgent need to continue strengthening the Philippine regime against money laundering and terrorist financing.
“To revive investment and return to its high pre-pandemic growth rates, the Philippines must maintain the momentum of structural reforms. Significant progress has been made on many fronts, such as tax reform, digital payments, reducing bureaucracy, and mitigation and adaptation to climate change. However, sustained efforts will be needed to reduce restrictions on foreign investment, accelerate the roll-out of the national identity card, step up social protection, strengthen health care and education, and implement commitments on social security. climate change. These reforms will help the Philippines to better rebuild and position the country for a fairer and greener future.
“The IMF team exchanged views with officials from Bangko Sentral ng Pilipinas, the government’s economic hub, and other representatives of the public and private sectors. The team would like to thank the authorities and other stakeholders for the frank and constructive discussions during the virtual meetings, and the excellent logistical support.