The International Monetary Fund (IMF) trimmed its 2024 economic growth forecast for the Philippines to 6 percent from 6.2 percent it announced in April.
This represents the low end of the government’s gross domestic product (GDP) growth target of 6 percent to 7 percent this year.
It said growth would likely pick up to 6.2 percent in 2025.
An IMF team led by Elif Arbatli Saxegaard held meetings in Manila from June 4 to 10 to discuss recent economic and financial developments and the outlook for the Philippine economy.
“The Philippine economy continues to perform well despite external challenges and policy tightening. GDP growth moderated in 2023 to 5.5 percent, due to the confluence of global shocks, inflationary pressures, and slowing consumption. Growth is expected to rebound to 6.0 percent in 2024 and 6.2 percent in 2025, on the back of stronger consumption demand, higher public and private investment, and a recovery in exports,” Saxegaard said.
The IMF listed the downside risks to the growth outlook as geoeconomic fragmentation, high interest rates and climate-related shocks, while efforts to attract foreign direct investment, promote business-friendly reforms and enhance competitiveness could raise the economy’s long-term growth potential.
“The Bangko Sentral ng Pilipinas [BSP] has addressed inflationary pressures by holding the policy rate at 6.5 percent after a cumulative 450 basis points hike since May 2022. After peaking in early 2023, inflation has declined to within the BSP’s target band, with lower commodity prices supporting the normalization,” the IMF mission said.
It said while higher prices of food recently led to an uptick, inflation was projected to decline towards the target of 3.0 percent in the second half of the year.
Risks to inflation remain to the upside, stemming from geopolitical tensions and recurrent commodity price volatility.
“In this context, the recent reduction in tariffs on rice imports from 35 to 15 percent in the second half of the year, along with the decision to streamline administrative procedures and remove non-tariff barriers in the importation of agricultural products can play an important role in mitigating food price increases and their impact on vulnerable households,” it said.
The IMF mission said the BSP should continue to maintain a sufficiently restrictive policy stance to firmly anchor inflation expectations.
It expects the current account deficit to narrow from 2.6 percent of GDP in 2023 to 2.1 percent in 2024 mainly due to a rise in goods exports and tourism and reserves remain robust at $102.7 billion in April 2024.
“Fiscal consolidation is set to continue over the medium term, though at a slower pace than initially envisaged. The latest Medium-Term Fiscal Program presents a more pro-growth fiscal stance anchored around higher capital spending and a more gradual increase in revenues over the medium term,” it said.
It described the revised consolidation plan as ambitious, implying a reduction in the fiscal deficit from 6.2 percent of GDP in 2023 to 3.7 percent of GDP in 2028.
“It will be important to ensure that social protection programs, universal health care coverage and higher education outlays are appropriately enhanced. Revenue mobilization remains critical to sustain a credible medium-term fiscal consolidation strategy, rebuild buffers, and create space for poverty reduction efforts. Tax administration improvements should be supplemented with tax policy changes, notably to improve the efficiency of value-added tax and broaden the tax base,” it said.
The IMF said “financial stability risks appear contained, and credit growth remains healthy despite higher lending rates.”
The banking system has strong capital and liquidity buffers, and the expected normalization of monetary policy will further support domestic demand. Nonetheless, banks’ exposures to commercial real estate and leveraged corporates warrant close monitoring in the current high interest rate environment,” it said.
It said recent reforms to attract foreign investment and create a business-friendly environment aim to diversify the economy and develop the country’s growth potential.
