Philippines: 2024 Article IV Consultation-Press Release; and Staff Report

2024ARTICLE IV CONSULTATION—PRESS RELEASE;ANDSTAFF REPORT Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussionswith members, usually every year. In the context of the2024Article IV consultation withthe Philippines, the following documents have been released and are included in thispackage: •APress Release. •TheStaff Reportprepared by a staff team of the IMF for the Executive Board’sconsideration ona lapse of time basis, following discussions that ended onOctober2,2024, with the officials ofthe Philippineson economic developments andpolicies. Based on information available at the time of these discussions, the staffreport was completed onNovember 15, 2024 •AnInformational Annexprepared by the IMFstaff. The documents listed below have been or will beseparately released. Selected Issues TheIMF’s transparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Copies of this report are available to the public from International Monetary Fund•Publication ServicesPO Box 92780•Washington, D.C. 20090Telephone: (202) 623-7430•Fax: (202) 623-7201E-mail:publications@imf.org Web:http://www.imf.org International Monetary FundWashington, D.C. IMF Executive Board Concludes2024Article IV Consultationwiththe Philippines FOR IMMEDIATE RELEASE Washington, DC–December19,2024:On December 4, 2024, the Executive Board ofthe International Monetary Fund (IMF) concludedthe2024ArticleIV consultation1withthe Philippines. Following a strong post-pandemic rebound in 2022, the Philippine economy moderatedin 2023, growing by 5.5percent. Growth recovered to 5.8 percent in the first threequarters of 2024 driven bystrongpublic consumptionand public construction, which waspartially offset bythe El Nino weather phenomena and subduedprivateconsumption.Both headline and core inflation decelerated from their peaks in early 2023—to 2.3and2.4percent (year-on-year) respectively in October 2024. The current account deficitnarrowed to 2.7percent of GDP in 2023 from4.5 percent andis expected to narrowfurther in 2024amid lower commodity prices, a gradual pick-up in tourism and businessprocess outsourcing sector receipts. The banking system has weathered the high interestenvironment well so far with sufficient liquidity and capital buffers. Growth is expected to accelerate in 2024-25, supported by disinflation, and graduallydeclining borrowing costs asmonetarypolicy normalizes. Growth is expected to reach5.8percent in 2024 and pick up to 6.1 percent in 2025. Potential output is estimated to bebetween 6.0to 6.3percent over the medium term. Inflation is projected decline to3.2percent on average in 2024 from 6.0 percent in 2023, supported by the reduction inrice tariffs and other non-monetary measures to reduce food prices. The current accountdeficit is expected to narrow to 2.0 and 1.9 percent in 2024 and 2025. The risks to thenear-term growth outlook are tilted to the downside, mainly stemming from recurrentcommodity price volatility, new supply shocks, an escalation of geopolitical tensions,monetary policy stance in advanced economies turning out to be too tight for longer, agrowth slowdown in major economies,major natural disasters or extreme climate events,and stalled reformmomentum or lower than expected payoffs from reforms. Executive Board Assessment2 In concluding the 2024 Article IV consultation discussions with the Philippines, ExecutiveDirectors endorsed the staff’s appraisal, as follows: The authorities have handled the challenges arising from multiple external headwinds wellwith wide-ranging plans for high and inclusive growth. Growth has been resilient, despiteexternal shocks and an unprecedented tightening in global monetary conditions.Following a sharp increase in inflation in 2022, as in other countries, the authoritiespromptly adjusted the policy rate, and initiated gradual fiscal consolidation. Several keyreforms have been introduced to spur investment and promote exports. Growth is expected to pick up modestly in 2024-25 while inflation should remain withintheBangko Sentral ng Pilipinas (BSP)’s target range. Growth will be supported by anacceleration in consumption as food prices ease and by an increase in investmentsustained by continued emphasis on public investment and more accommodativefinancial conditions. The 2023 external sector position is assessed to be broadly in linewith the level implied by the fundamentals and desirable policies. Risks to the near-termgrowth outlook are tilted to the downside, including external risks such as recurrentcommodity price volatility and escalation of geopolitical tensions, and domestic risksrelated to lower-than-expected payoffs from reforms. New supply shocks and recurringcommodity price volatility represent upside inflation risks. The BSP has room to ease the policy rate gradually towards a neutral stance. Withinflation a