Manila: Officials of the International Monetary Fund (IMF) have acknowledged that the Philippine government's macroeconomic policies and reforms support economic growth, but they still cut their growth forecasts for the domestic economy in 2025 and the following year due to the impact of external developments.
According to Philippines News Agency, in a report released Monday following the end of the Article IV Consultation with the Philippines last Nov. 24, the IMF now projects a gross domestic product (GDP) growth of 5.1 percent for this year, citing increasing tariffs that weigh on exports and investments. The forecast for next year stands at 5.6 percent. These figures have been revised from previous estimates of 5.4 percent and 5.7 percent for 2025 and 2026, respectively.
The report highlighted the expected 5.7 percent expansion of the Philippine economy in 2024, driven by strong public consumption and investment. However, growth slowed to 5.4 percent in the first six months of this year due to factors related to imports. The third quarter saw a further deceleration to 4 percent, attributed to weaker gross fixed capital formation, partially linked to issues with anomalous flood control projects, and decreased private consumption.
Despite the reduction in growth forecasts, the IMF noted that the potential growth of the domestic economy is estimated at around 6 percent for the medium term. 'The risks to the near-term growth outlook are tilted to the downside,' the report stated, identifying external risks such as 'prolonged global trade policy uncertainty, geopolitical tensions, and disruptive financial market corrections.' Domestic factors, including macroeconomic losses from 'more frequent and intense climate shocks,' were also mentioned.
The report suggested that accelerated implementation of structural and governance reforms could bolster investor confidence, raise fiscal multipliers, and enhance potential growth. It acknowledged the government's medium-term fiscal consolidation plan as a strategy to 'help reinforce fiscal space and external balance and support a growth-friendly strategy.'
The IMF encouraged the implementation of durable tax and expenditure measures to limit the need for restraint in priority spending while highlighting the importance of enhancing public financial management and spending efficiency. The report also recommended embedding fiscal targets in a formal fiscal rule.
Inflation is forecast to average 1.7 percent this year and 2.8 percent next year, with the rate of price increases averaging 1.6 percent in the first six months of this year, significantly below the Bangko Sentral ng Pilipinas (BSP) target band of 2-4 percent.
In terms of monetary policy, the report advised that the 'monetary policy stance should remain accommodative amid elevated downside risks to growth and well-anchored inflation expectations,' and welcomed the authorities' data-dependent approach. Last week, the BSP's policy-making Monetary Board (MB) reduced the central bank's key rates by 25 basis points, setting the target reverse repurchase rate at 4.5 percent. The overnight deposits and lending rates are set at 4 percent and 5 percent, respectively.
Monetary authorities indicated that they are nearing the end, if not the conclusion, of their easing cycle. The report urged authorities to allow the exchange rate to function as a shock absorber, using interventions temporarily to address disorderly market conditions, and encouraged efforts to deepen capital markets and enhance monetary policy transmission.
