Philippines: Staff Report for the 2006 Article IV Consultation

International Monetary Fund

doi:10.5089/9781451831399.002.A001

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Philippines: Staff Report for the 2006 Article IV Consultation

Author: International Monetary Fund

Publication Date:: 13 Feb 2007

eISBN:: 9781451831399

Language:: English

Keywords:: ISCR; CR; policy stance; Staff Report state; deficit; policy; statement; central bank; short-term debt; long-term debt; foreign exchange; banking sector; Public sector; Nonperforming loans; Global

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The 2006 Article IV Consultation on the Philippines discusses stronger exports and reduced inflation, with the 12-month rate back within the inflation target. Remittances have continued to grow strongly, and the balance of payments received additional support in the second half of 2006 from weaker oil prices. Continued reforms are necessary to boost investment and accelerate progress in reducing poverty. Executive Directors observed that stock of repossessed real estate assets remains large and that solving this problem will be key to allowing the banking sector to contribute to investment recovery.

Abstract

I. Introduction

1. Financial markets have rewarded the rapid pace of fiscal consolidation. The large reduction in the national government deficit in 2004 and 2005 was achieved primarily through expenditure compression. However, full implementation of the VAT reform in early 2006 broadened the national government’s adjustment effort to the revenue side, and tax administration has proved sufficient to ensure that collections have risen as programmed. The progress with fiscal consolidation has contributed to a surge in investor confidence that has led to a dramatic fall in the local currency risk premium (Chart 1).

2. However, the reform momentum needs to be sustained. Uncertainty over the future direction of U.S. monetary policy in May–June 2006 quickly spilled over into local markets (Chart 2), as it did in other emerging markets. This episode is a reminder that, with public debt and external commercial borrowing requirements still high, the Philippines is still vulnerable. Local markets would likely be hard hit by a renewed rise in global risk aversion, particularly if this were to coincide with signs of fiscal slippage in the run-up to the May 2007 elections. The reform momentum will also need to be sustained for there to be positive growth spillovers, which are needed to step up the pace of poverty reduction (nearly 50 percent of the population live on less than $2 a day) and build popular support for reforms.

II. Recent Economic Developments

3. Private consumption and exports have been the principal growth drivers. Growth averaged 5.4 percent (y/y) in the first three quarters of 2006, up from 4.8 percent in the same period in 2005 (Chart 3), boosted by a recovery in both electronics and non-electronics exports (Chart 4). Private consumption remains a major driver of growth, underpinned by remittances, which are up 17 percent (y/y) through October. Staff expect growth to have held up in Q4, in part due to the boost to spending from the Supplemental Budget passed in October, and have revised up the growth forecast for the year from 5.0 to 5.5 percent.

4. Monetary policy has been eased in an environment of falling inflation. Headline inflation fell to 4.3 percent (y/y) in December, implying average inflation of 6.2 percent in 2006, compared to the inflation target of 4–5 percent for 2006 and 2007 (Chart 5). A series of adverse supply shocks, including those from food prices, international oil prices, and the VAT reform, have failed to feed into underlying inflation, which staff estimate to be running between 3–4 percent (Chart 6). This environment allowed the BSP to reintroduce the tiering scheme in early November, thereby effectively easing monetary policy.¹

5. The national government deficit looks likely to have undershot the 2006 target, and further consolidation is planned for 2007. Revenues grew by over 20 percent in January–October (y/y) due to successful implementation of the VAT reform, and there are also possible signs that collection efficiency is improving (Chart 7). Meanwhile, despite large needs, spending growth was slow reflecting the failure of Congress to pass the 2006 budget. Against this background, staff expect the national government deficit to have shrunk further in 2006 and to be significantly below the target of 2 percent of GDP. A similar fall is expected for the non-financial public sector (NFPS) deficit, reflecting consolidation at the national government level, continued improved performance of the social security institutions, and expenditure savings by the National Power Corporation (NPC) (Text Table 1). The 2007 budget programs a further reduction in the national government deficit to 0.9 percent of GDP and a large increase in priority infrastructure and social spending, on the basis of assumed strong revenue growth.

Text Table 1.

Sectoral Breakdown of the NFPS Deficit, 2003-06

Sources: Philippine authorities; and Fund staff calculations.1/ Staff’s projections.Key: NG - National Government; SSIs - Social Security Institutions; LGUs - Local Government Units; GOCCs - Government Owned and/or Controlled Corporations; NPC -National Power Corporation.

Text Table 1.

Sectoral Breakdown of the NFPS Deficit, 2003-06

		2003	2004	2005	2006
		(In percent of GDP)
NFPS		5.6	5.0	2.1	0.9
	NG (IMF definition)	4.9	4.2	3.0	1.9
	SSIs	−0.4	−0.5	−0.9	−0.9
	LGUs	−0.4	−0.3	−0.4	−0.3
	GOCCs (incl. NPC)	1.5	1.8	0.4	0.4
	Other	−0.1	−0.1	0.0	−0.2
Memorandum items:
	NG (auth. Definition)	4.6	3.8	2.7	1.5

Text Table 1.

Sectoral Breakdown of the NFPS Deficit, 2003-06

		2003	2004	2005	2006
		(In percent of GDP)
NFPS		5.6	5.0	2.1	0.9
	NG (IMF definition)	4.9	4.2	3.0	1.9
	SSIs	−0.4	−0.5	−0.9	−0.9
	LGUs	−0.4	−0.3	−0.4	−0.3
	GOCCs (incl. NPC)	1.5	1.8	0.4	0.4
	Other	−0.1	−0.1	0.0	−0.2
Memorandum items:
	NG (auth. Definition)	4.6	3.8	2.7	1.5

6. There have been strong inflows of foreign exchange. Remittances have continued to grow strongly and the balance of payments received additional support in the second half of 2006 from weaker oil prices. There has been a pick-up in FDI (cumulative net inflows were $1.6 billion as of September, up by two thirds compared to the same period in 2005). There was also a pronounced acceleration in net portfolio inflows once global risk appetite resumed in Q3 following the sell-off in May–June, with net portfolio inflows from July through November of $1.3 billion, five times the level in the same period in 2005 (Chart 8). Against this backdrop, the peso appreciated by 7½ percent against the U.S. dollar during 2006, even as the Bangko Sentral ng Pilipinas (BSP) continued to build reserves, while using off-balance sheet currency swaps with local banks to reduce the impact on reserve money (Chart 9). The authorities also used the greater availability of foreign exchange to repay external debt, and to reduce their reliance on external borrowing.²

7. The rapid pace of foreign exchange inflows has boosted liquidity growth. As foreign exchange inflows have accelerated across the region, growth in broad money has risen (Chart 10). In the Philippines, M3 growth peaked at 16.2 percent in August 2005 (y/y), but subsequently fell as households shifted from deposits to unit investment trust funds (UITFs). In the wake of the May–June market turbulence, households switched back into deposits and M3 growth reached 18.5 percent in November.

III. Outlook and Risks

8. The debt profile has become more favorable, though rollover and exchange risk remain high. As a result of recent reforms (Text Table 2), continued robust growth, and the more appreciated exchange rate, staff expect NFPS debt to have fallen below 80 percent of GDP by end-2006, compared to 100 percent at end-2003. External debt is expected to have declined by a similar order of magnitude. Nonetheless, the Philippines remains vulnerable to a sudden reversal in global risk appetite, as rollover and exchange risk remain high (Chart 11).

Text Table 2.

Review of Past Fund Surveillance

Text Table 2.

Review of Past Fund Surveillance

Fund Policy Advice in 2002–03	Status
Fund Policy Advice in 2002–03	2003 Article IV Consultation	2006 Article IV Consultation

Bring budget back under control in 2003 and preserve credibility of medium-term framework.	NG deficit reduced to 4½ percent of GDP, but NFPS deficit remained at 5½ percent of GDP. Date to balance budget moved from 2006 to 2009.	NG deficit set to fall to about 1½ percent of GDP in 2006. Similar decline projected for NFPS deficit. The authorities plan to balance the budget by 2008.
Strengthen tax administration and introduce new tax measures.	Some efforts to improve tax administration, but no major revenue-boosting reforms.	VAT reform fully implemented; excises on alcohol and cigarette increased.
Improve PCA framework, compel banks to raise capital, and strengthen legal protection for supervisors.	Second tier capital raised. Otherwise, little progress made.	Significant NPA sales and stronger PCA framework, but amendments to provide legal protection for supervisors still pending in Congress.
Depoliticize electricity pricing and limit NPC’s external borrowing.	Tariff increases continue to encounter obstacles. NPC borrowing sharply higher.	Generation tariffs increased by more than 50 percent, sharply cutting NPC losses.
Strengthen AML legislation.	AML law amended to correct deficiencies.	FATF views AML/CFT as being effectively implemented; Philippines removed from the list of Non-Cooperating Countries and Territories in February 2005.

Text Table 2.

Review of Past Fund Surveillance

Fund Policy Advice in 2002–03	Status
Fund Policy Advice in 2002–03	2003 Article IV Consultation	2006 Article IV Consultation

Bring budget back under control in 2003 and preserve credibility of medium-term framework.	NG deficit reduced to 4½ percent of GDP, but NFPS deficit remained at 5½ percent of GDP. Date to balance budget moved from 2006 to 2009.	NG deficit set to fall to about 1½ percent of GDP in 2006. Similar decline projected for NFPS deficit. The authorities plan to balance the budget by 2008.
Strengthen tax administration and introduce new tax measures.	Some efforts to improve tax administration, but no major revenue-boosting reforms.	VAT reform fully implemented; excises on alcohol and cigarette increased.
Improve PCA framework, compel banks to raise capital, and strengthen legal protection for supervisors.	Second tier capital raised. Otherwise, little progress made.	Significant NPA sales and stronger PCA framework, but amendments to provide legal protection for supervisors still pending in Congress.
Depoliticize electricity pricing and limit NPC’s external borrowing.	Tariff increases continue to encounter obstacles. NPC borrowing sharply higher.	Generation tariffs increased by more than 50 percent, sharply cutting NPC losses.
Strengthen AML legislation.	AML law amended to correct deficiencies.	FATF views AML/CFT as being effectively implemented; Philippines removed from the list of Non-Cooperating Countries and Territories in February 2005.

9. A loss of reform momentum would have negative economic implications over the medium term. The baseline scenario (Currently Identified Measures Scenario, Table 5) assumes that the national government meets its 2007 deficit target of 1 percent of GDP. However, staff assume that it does so by spending less than the budgeted amounts, reflecting likely slower-than-expected revenue growth and little chance of new tax measures ahead of the elections. Even though containing expenditure will be challenging in an election year, staff consider this to be the most likely scenario were revenues to underperform. Should there continue to be no additional revenue measures over the medium term, the NFPS deficit would settle at 2 percent of GDP, while public investment would increase only modestly. In this environment, staff expect growth to rise to 5.8 percent in 2007 and remain at that level over the medium term.

Table 1.

Philippines: Selected Economic Indicators, 2002–07

Sources: Philippine authorities; and Fund staff estimates and projections.

^¹/“Currently identified measures” scenario.

^²/Defined as difference between gross investment and current account. There is a statistical break in national saving and balance of payments data in 2003.

^³/Fund definition. Excludes privatization receipts of the national government, and includes net deficit from restructuring the central bank.

^⁴/Includes the national government, Central Bank-Board of Liquidators, 14 monitored government-owned enterprises, social security institutions, and local governments.

^⁵/The sum of all nonfinancial public sector revenue net of intra-public sector payments. It is assumed that 80 percent of Bureau of Treasury revenue represents interest and dividends from other parts of the nonfinancial public sector. Privatization receipts are excluded.

^⁶/Defined as difference between nonfinancial public sector revenue and balance.

^⁷/Debt is consolidated (net of intra-nonfinancial public sector holdings of debt). Data on local government debt are not available for 2001; it is assumed that these debts were the same as a share of GDP as in 2002.

^⁸/Secondary market rate.

^⁹/September 2006.

^¹⁰/November 2006.

^¹¹/Defined as external debt plus liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, some external debt not registered with the central bank and private capital lease agreements.

^¹²/Gross reserves less gold and securities pledged as collateral against short-term liabilities.

^¹³/Reserves as a percent of short-term debt (including medium- and long-term debt due in the following year). Both reserves and debt were adjusted for pledged assets.

Table 2.

Philippines: National Government Cash Accounts, 2002–2007

(In percent of GDP; unless otherwise noted)

Sources: Philippine authorities; and Fund staff projections.

^¹/“Currently-identified measures” scenario assumes no new tax measures starting in 2007, but higher capital spending from 2008.

^²/Includes other percentage taxes, documentary stamp tax, and non-cash collections. These collections are also reflected as tax expenditures under current expenditures.

^³/Excludes purchase of NPC securities and other onlending; includes capital transfers to LGUs. May exceed public investment in years when capital transfers to LGUs exceed their reported capital spending.

^⁴/Includes privatization receipts as revenue and excludes the operations of the Central Bank-Board of Liquidators (CB-BOL).

^⁵/Excludes privatization receipts from revenue.

^⁶/Consolidated (net of national government debt held by the sinking fund) and excludes contingent/guaranteed debt.

^⁷/Nonfinancial public sector includes the national government, CB-BOL, 14 monitored government-owned enterprises, social security institutions, and local governments. Debt is consolidated (net of intra-nonfinancial public sector holdings of debt). Data on local government debt are not available for 2001; it is assumed that these debts were the same as a share of GDP as in 2002.

^⁸/Defined as the deficit, plus amortization of medium- and long-term debt, plus the stock of short-term debt at the end of the last period, plus market financing on behalf of NPC.

Table 2.

Philippines: National Government Cash Accounts, 2002–2007

(In percent of GDP; unless otherwise noted)

				2002	2003	2004	2005	2006		2007
							Prel.	Proposed	Staff	Proposed	Staff
							Est.	Budget	Proj.	Budget	Proj. ^1/
Revenue and grants				14.7	14.9	14.6	15.1	16.2	16.0	16.7	16.0
	Tax revenue			12.8	12.8	12.5	13.0	14.6	14.3	15.3	14.3
		Net Income and Profits		5.7	5.6	5.7	6.0	…	6.1	…	6.2
		Excises		1.7	1.6	1.6	1.4	…	1.1	…	1.2
		VAT		2.9	3.1	2.9	2.9	…	4.3	…	4.3
		Tariffs		0.9	1.0	1.0	1.1	…	1.1	…	1.1
		Other ^2/		1.6	1.4	1.3	1.7	…	1.7	…	1.7
	Nontax revenue			1.8	2.1	2.1	2.0	1.6	1.7	1.3	1.7
			Of which: Central Bank-Board of Liquidators	0.1	0.1	0.1	0.0	…	0.0	…	0.0
			Of which: Recovery of Marcos wealth	…	…	0.2	0.0	…	0.0	…	0.0
Expenditure and net lending				20.3	19.8	18.8	18.1	18.6	17.9	17.9	17.2
	Current expenditures			17.1	17.1	15.9	15.6	15.8	15.4	15.1	14.7
		Personnel services		6.7	6.4	5.8	5.5	5.5	5.5	5.6	5.6
		Maintenance and operations		2.1	1.8	1.7	1.6	1.8	1.6	1.9	1.6
		Allotments to local government units		2.8	2.7	2.3	2.3	2.2	2.2	2.2	2.3
		Subsidies		0.1	0.3	0.1	0.1	0.1	0.2	0.1	0.1
		Tax expenditure		0.3	0.3	0.1	0.4	…	0.2	0.2	0.2
		Interest		5.1	5.6	5.7	5.8	6.0	5.6	5.1	4.8
			National government	4.7	5.2	5.4	5.5	5.7	5.3	4.7	4.5
			Central Bank-Board of Liquidators	0.4	0.4	0.4	0.3	0.4	0.4	0.3	0.3
	Capital and equity expenditure ^3/			3.1	2.6	2.7	2.4	2.7	2.4	2.7	2.4
	Net lending			0.1	0.1	0.1	0.0	0.1	0.1	0.1	0.1
Balance				−5.6	−4.9	−4.2	−3.0	−2.4	−1.9	−1.3	−1.3
	On the authorities’ presentation ^4/			−5.3	−4.6	−3.8	−2.7	−2.1	−1.5	−0.9	−1.0
Financing				5.6	4.9	4.2	3.0	2.4	1.9	1.3	1.3
	Net external financing			2.8	3.3	1.7	1.7	1.7	0.5	0.9	0.9
	Net domestic financing			2.9	1.6	2.5	1.3	0.7	1.4	0.4	0.4
Memorandum Items:
	Nonfinancial public sector balance ^5/			−5.7	−5.6	−5.0	−2.1	…	−0.9	…	−0.7
	Consolidated public sector balance ^5/			−5.6	−5.2	−4.8	−1.8	…	−0.7	…	−0.5
	Primary national government balance			−0.6	0.7	1.6	2.8	3.6	3.7	3.8	3.6
	National government debt ^6/			66.5	71.4	69.9	63.1	…	58.4	…	54.9
		(percent of NG revenues)		453.6	480.1	479.2	419.4	…	365.1	…	343.9
	Nonfinancial public sector debt ^7/			93.7	100.8	95.4	86.3	…	77.4	…	72.7
		(percent of NFPS revenues)		448.1	483.0	465.1	390.3	…	333.9	…	313.3
	National government gross financing requirements ^8/			23.2	23.6	24.4	21.2	…	22.0	…	17.1
	GDP (in billions of pesos)			3,964	4,316	4,859	5,419	5,999	6,014	6,713	6,613

Sources: Philippine authorities; and Fund staff projections.

^¹/“Currently-identified measures” scenario assumes no new tax measures starting in 2007, but higher capital spending from 2008.

^²/Includes other percentage taxes, documentary stamp tax, and non-cash collections. These collections are also reflected as tax expenditures under current expenditures.

^⁴/Includes privatization receipts as revenue and excludes the operations of the Central Bank-Board of Liquidators (CB-BOL).

^⁵/Excludes privatization receipts from revenue.

^⁶/Consolidated (net of national government debt held by the sinking fund) and excludes contingent/guaranteed debt.

^⁸/Defined as the deficit, plus amortization of medium- and long-term debt, plus the stock of short-term debt at the end of the last period, plus market financing on behalf of NPC.

Table 2.

Philippines: National Government Cash Accounts, 2002–2007

(In percent of GDP; unless otherwise noted)

				2002	2003	2004	2005	2006		2007
							Prel.	Proposed	Staff	Proposed	Staff
							Est.	Budget	Proj.	Budget	Proj. ^1/
Revenue and grants				14.7	14.9	14.6	15.1	16.2	16.0	16.7	16.0
	Tax revenue			12.8	12.8	12.5	13.0	14.6	14.3	15.3	14.3
		Net Income and Profits		5.7	5.6	5.7	6.0	…	6.1	…	6.2
		Excises		1.7	1.6	1.6	1.4	…	1.1	…	1.2
		VAT		2.9	3.1	2.9	2.9	…	4.3	…	4.3
		Tariffs		0.9	1.0	1.0	1.1	…	1.1	…	1.1
		Other ^2/		1.6	1.4	1.3	1.7	…	1.7	…	1.7
	Nontax revenue			1.8	2.1	2.1	2.0	1.6	1.7	1.3	1.7
			Of which: Central Bank-Board of Liquidators	0.1	0.1	0.1	0.0	…	0.0	…	0.0
			Of which: Recovery of Marcos wealth	…	…	0.2	0.0	…	0.0	…	0.0
Expenditure and net lending				20.3	19.8	18.8	18.1	18.6	17.9	17.9	17.2
	Current expenditures			17.1	17.1	15.9	15.6	15.8	15.4	15.1	14.7
		Personnel services		6.7	6.4	5.8	5.5	5.5	5.5	5.6	5.6
		Maintenance and operations		2.1	1.8	1.7	1.6	1.8	1.6	1.9	1.6
		Allotments to local government units		2.8	2.7	2.3	2.3	2.2	2.2	2.2	2.3
		Subsidies		0.1	0.3	0.1	0.1	0.1	0.2	0.1	0.1
		Tax expenditure		0.3	0.3	0.1	0.4	…	0.2	0.2	0.2
		Interest		5.1	5.6	5.7	5.8	6.0	5.6	5.1	4.8
			National government	4.7	5.2	5.4	5.5	5.7	5.3	4.7	4.5
			Central Bank-Board of Liquidators	0.4	0.4	0.4	0.3	0.4	0.4	0.3	0.3
	Capital and equity expenditure ^3/			3.1	2.6	2.7	2.4	2.7	2.4	2.7	2.4
	Net lending			0.1	0.1	0.1	0.0	0.1	0.1	0.1	0.1
Balance				−5.6	−4.9	−4.2	−3.0	−2.4	−1.9	−1.3	−1.3
	On the authorities’ presentation ^4/			−5.3	−4.6	−3.8	−2.7	−2.1	−1.5	−0.9	−1.0
Financing				5.6	4.9	4.2	3.0	2.4	1.9	1.3	1.3
	Net external financing			2.8	3.3	1.7	1.7	1.7	0.5	0.9	0.9
	Net domestic financing			2.9	1.6	2.5	1.3	0.7	1.4	0.4	0.4
Memorandum Items:
	Nonfinancial public sector balance ^5/			−5.7	−5.6	−5.0	−2.1	…	−0.9	…	−0.7
	Consolidated public sector balance ^5/			−5.6	−5.2	−4.8	−1.8	…	−0.7	…	−0.5
	Primary national government balance			−0.6	0.7	1.6	2.8	3.6	3.7	3.8	3.6
	National government debt ^6/			66.5	71.4	69.9	63.1	…	58.4	…	54.9
		(percent of NG revenues)		453.6	480.1	479.2	419.4	…	365.1	…	343.9
	Nonfinancial public sector debt ^7/			93.7	100.8	95.4	86.3	…	77.4	…	72.7
		(percent of NFPS revenues)		448.1	483.0	465.1	390.3	…	333.9	…	313.3
	National government gross financing requirements ^8/			23.2	23.6	24.4	21.2	…	22.0	…	17.1
	GDP (in billions of pesos)			3,964	4,316	4,859	5,419	5,999	6,014	6,713	6,613

Sources: Philippine authorities; and Fund staff projections.

^¹/“Currently-identified measures” scenario assumes no new tax measures starting in 2007, but higher capital spending from 2008.

^²/Includes other percentage taxes, documentary stamp tax, and non-cash collections. These collections are also reflected as tax expenditures under current expenditures.

^⁴/Includes privatization receipts as revenue and excludes the operations of the Central Bank-Board of Liquidators (CB-BOL).

^⁵/Excludes privatization receipts from revenue.

^⁶/Consolidated (net of national government debt held by the sinking fund) and excludes contingent/guaranteed debt.

^⁸/Defined as the deficit, plus amortization of medium- and long-term debt, plus the stock of short-term debt at the end of the last period, plus market financing on behalf of NPC.

Table 3.

Philippines: Balance of Payments, 2002–07

(In billions of U.S. dollars)

Sources: Philippine authorities and Fund staff projections.

^¹/Based on revisions to the data, made September 2006.

^²/The 2003–04 revisions to the data separate remittances made by Filipino residents working abroad (income), and non-resident workers’ remittances (transfers).

^³/Gross reserves less gold and securities pledged as collateral against short term liabilities.

^⁴/As a percent of short-term debt excluding pledged assets of the central bank.

^⁵/Monitored external liabilities are defined as external debt plus liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, some external debt not registered with the central bank and private capital lease agreements.

^⁶/In percent of goods and non-factor services.

^⁷/Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

Table 3.

Philippines: Balance of Payments, 2002–07

(In billions of U.S. dollars)

					2002	2003	2004	2005 ^1/	2006	2007
									Staff Proj.
CURRENT ACCOUNT BALANCE					−0.3	0.3	1.6	2.0	3.3	2.8
	Trade Balance				−5.5	−5.9	−5.7	−7.8	−9.0	−10.1
		Exports, f.o.b.			34.4	35.3	38.8	40.3	44.5	47.5
		Imports, f.o.b.			39.9	41.2	44.5	48.0	53.5	57.6
			of which: oil and related products		3.2	3.7	4.6	6.1	7.3	7.9
	Services (net)				−2.0	−2.0	−1.8	−1.4	−0.6	−0.7
		Receipts			3.4	3.4	4.0	4.4	5.8	6.2
		Payments			5.4	5.4	5.8	5.9	6.4	6.9
	Income				−0.4	−0.3	−0.1	−0.2	−0.1	0.1
	Receipts, of which:				3.3	3.3	3.7	3.9	4.6	4.9
		Remittances of resident workers abroad ^2/			2.6	2.6	2.9	2.9	3.2	3.6
	Payments				3.7	3.6	3.8	4.2	4.6	4.8
		Interest payments			2.6	2.5	2.4	2.7	3.3	3.6
	Transfers (net)				7.7	8.4	9.2	11.4	13.0	13.5
		Receipts, of which:			7.9	8.6	9.4	11.7	13.4	14.0
				Non-resident workers remittances ^2/	7.2	7.7	8.6	10.7	12.3	13.2
		Payments			0.3	0.2	0.3	0.3	0.4	0.4
CAPITAL AND FINANCIAL ACCOUNT					1.1	0.7	−1.6	1.6	−0.5	−1.3
	Capital Account				0.0	0.1	0.0	0.0	0.0	0.0
	Financial Account				1.0	0.7	−1.6	1.6	−0.5	−1.3
		Direct Investment			1.5	0.2	0.1	1.2	1.9	2.2
		Portfolio Investment			0.7	0.6	−1.7	3.6	2.9	2.5
			Equity		0.2	0.5	0.5	1.5	1.9	1.5
			Debt		0.5	0.1	−2.2	2.1	1.0	1.0
		Other Investment			−1.2	−0.1	0.0	−3.2	−4.9	−6.0
ERRORS AND OMISSIONS					0.0	−0.9	−0.3	−1.2	0.2	0.6
OVERALL BALANCE					0.8	0.1	−0.3	2.4	3.5	2.1
OVERALL FINANCING					−0.8	−0.1	0.3	−2.4	−3.5	−2.1
	Monetization of gold and revaluation				0.8	0.9	0.8	0.7	0.2	0.2
	Change in Net international reserves (increase =-)				−1.6	−1.0	−0.5	−3.1	−3.7	−2.4
		BSP Gross Reserves (increase =-)			−0.7	−0.7	0.8	−2.3	−3.5	−2.2
		Fund credit (net)			−0.3	−0.5	−0.4	−0.3	−0.2	−0.2
		Change in other BSP liabilities			−0.7	0.1	−0.9	−0.5	0.0	0.0
Memorandum items:
	Current account/GDP				−0.4	0.4	1.9	2.0	2.9	2.1
	Short-term debt (original maturity)				8.0	8.2	7.6	9.4	8.2	8.5
	Short-term debt (residual maturity)				13.4	14.1	13.1	15.5	13.8	15.1
	Gross reserves				16.4	17.1	16.2	18.5	22.0	24.2
	Adjusted gross reserves ^3/				14.5	14.9	15.2	18.0	22.0	24.2
		(in percent of st. debt by res. maturity) ^4/			126.1	124.2	125.8	120.1	159.5	160.4
	Net international reserves				13.0	14.1	14.6	17.7	21.1	23.4
	Total external debt (in billions) ^5/				59.7	62.8	61.2	61.6	60.5	62.4
		(in percent of GDP)			77.7	78.8	70.5	62.6	51.5	46.7
	Debt service ratio ^6/				19.7	20.6	19.7	18.5	19.6	19.2
	Export value (percent change)				9.9	2.7	9.8	3.3	10.6	6.6
	Import value (percent change)				6.3	3.1	8.0	8.0	11.4	7.5
	Gross external financing needs ^7/				14.3	13.1	12.5	11.1	12.1	11.0
	GDP (in billions)				76.8	79.6	86.7	98.4	117.4	133.6

Sources: Philippine authorities and Fund staff projections.

^¹/Based on revisions to the data, made September 2006.

^²/The 2003–04 revisions to the data separate remittances made by Filipino residents working abroad (income), and non-resident workers’ remittances (transfers).

^³/Gross reserves less gold and securities pledged as collateral against short term liabilities.

^⁴/As a percent of short-term debt excluding pledged assets of the central bank.

^⁶/In percent of goods and non-factor services.

^⁷/Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

Table 3.

Philippines: Balance of Payments, 2002–07

(In billions of U.S. dollars)

					2002	2003	2004	2005 ^1/	2006	2007
									Staff Proj.
CURRENT ACCOUNT BALANCE					−0.3	0.3	1.6	2.0	3.3	2.8
	Trade Balance				−5.5	−5.9	−5.7	−7.8	−9.0	−10.1
		Exports, f.o.b.			34.4	35.3	38.8	40.3	44.5	47.5
		Imports, f.o.b.			39.9	41.2	44.5	48.0	53.5	57.6
			of which: oil and related products		3.2	3.7	4.6	6.1	7.3	7.9
	Services (net)				−2.0	−2.0	−1.8	−1.4	−0.6	−0.7
		Receipts			3.4	3.4	4.0	4.4	5.8	6.2
		Payments			5.4	5.4	5.8	5.9	6.4	6.9
	Income				−0.4	−0.3	−0.1	−0.2	−0.1	0.1
	Receipts, of which:				3.3	3.3	3.7	3.9	4.6	4.9
		Remittances of resident workers abroad ^2/			2.6	2.6	2.9	2.9	3.2	3.6
	Payments				3.7	3.6	3.8	4.2	4.6	4.8
		Interest payments			2.6	2.5	2.4	2.7	3.3	3.6
	Transfers (net)				7.7	8.4	9.2	11.4	13.0	13.5
		Receipts, of which:			7.9	8.6	9.4	11.7	13.4	14.0
				Non-resident workers remittances ^2/	7.2	7.7	8.6	10.7	12.3	13.2
		Payments			0.3	0.2	0.3	0.3	0.4	0.4
CAPITAL AND FINANCIAL ACCOUNT					1.1	0.7	−1.6	1.6	−0.5	−1.3
	Capital Account				0.0	0.1	0.0	0.0	0.0	0.0
	Financial Account				1.0	0.7	−1.6	1.6	−0.5	−1.3
		Direct Investment			1.5	0.2	0.1	1.2	1.9	2.2
		Portfolio Investment			0.7	0.6	−1.7	3.6	2.9	2.5
			Equity		0.2	0.5	0.5	1.5	1.9	1.5
			Debt		0.5	0.1	−2.2	2.1	1.0	1.0
		Other Investment			−1.2	−0.1	0.0	−3.2	−4.9	−6.0
ERRORS AND OMISSIONS					0.0	−0.9	−0.3	−1.2	0.2	0.6
OVERALL BALANCE					0.8	0.1	−0.3	2.4	3.5	2.1
OVERALL FINANCING					−0.8	−0.1	0.3	−2.4	−3.5	−2.1
	Monetization of gold and revaluation				0.8	0.9	0.8	0.7	0.2	0.2
	Change in Net international reserves (increase =-)				−1.6	−1.0	−0.5	−3.1	−3.7	−2.4
		BSP Gross Reserves (increase =-)			−0.7	−0.7	0.8	−2.3	−3.5	−2.2
		Fund credit (net)			−0.3	−0.5	−0.4	−0.3	−0.2	−0.2
		Change in other BSP liabilities			−0.7	0.1	−0.9	−0.5	0.0	0.0
Memorandum items:
	Current account/GDP				−0.4	0.4	1.9	2.0	2.9	2.1
	Short-term debt (original maturity)				8.0	8.2	7.6	9.4	8.2	8.5
	Short-term debt (residual maturity)				13.4	14.1	13.1	15.5	13.8	15.1
	Gross reserves				16.4	17.1	16.2	18.5	22.0	24.2
	Adjusted gross reserves ^3/				14.5	14.9	15.2	18.0	22.0	24.2
		(in percent of st. debt by res. maturity) ^4/			126.1	124.2	125.8	120.1	159.5	160.4
	Net international reserves				13.0	14.1	14.6	17.7	21.1	23.4
	Total external debt (in billions) ^5/				59.7	62.8	61.2	61.6	60.5	62.4
		(in percent of GDP)			77.7	78.8	70.5	62.6	51.5	46.7
	Debt service ratio ^6/				19.7	20.6	19.7	18.5	19.6	19.2
	Export value (percent change)				9.9	2.7	9.8	3.3	10.6	6.6
	Import value (percent change)				6.3	3.1	8.0	8.0	11.4	7.5
	Gross external financing needs ^7/				14.3	13.1	12.5	11.1	12.1	11.0
	GDP (in billions)				76.8	79.6	86.7	98.4	117.4	133.6

Sources: Philippine authorities and Fund staff projections.

^¹/Based on revisions to the data, made September 2006.

^²/The 2003–04 revisions to the data separate remittances made by Filipino residents working abroad (income), and non-resident workers’ remittances (transfers).

^³/Gross reserves less gold and securities pledged as collateral against short term liabilities.

^⁴/As a percent of short-term debt excluding pledged assets of the central bank.

^⁶/In percent of goods and non-factor services.

^⁷/Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

Table 4.

Philippines: Monetary Survey, 2002–06

Sources: Philippine authorities; CEIC, and Fund staff estimates.

^¹/The Central Bank-Board of Liquidators was established in 1993 to absorb the debts of the old central bank.

Table 4.

Philippines: Monetary Survey, 2002–06

					2002	2003	2004	2005	2006
					Dec.	Dec.	Dec.	Dec.	Mar.	Jun.	Sep.
							(In billions of pesos)
Net foreign assets					551	673	727	961	1,102	1,239	1,295
	Central bank				547	637	690	846	938	1,013	1,000
		Net international reserves			693	782	820	937	1,024	1,091	1,072
		Medium and long-term foreign liabilities			146	145	130	91	86	78	72
	Deposit money banks				4	37	37	115	164	226	295
Net domestic assets					1,799	1,801	1,985	1,925	1,779	1,863	1,854
	Net domestic credit				2,207	2,314	2,533	2,428	2,292	2,434	2,397
		Public sector credit			727	807	956	875	765	898	875
			National Government		590	620	764	652	536	665	648
				Credits	749	807	923	852	797	915	889
				Foreign exchange receivables	7	7	15	18	17	4	4
				Treasury IMF Accounts	−50	−58	−65	−66	−66	−60	−60
				Deposits	−117	−137	−109	−152	−213	−194	−185
			Local government and others		132	184	191	222	229	233	227
			Claims on CB-BOL ^1/		6	4	1	0	0	0	0
			Private sector credit		1,480	1,507	1,577	1,553	1,526	1,536	1,522
		Other items net			−408	−513	−548	−503	−513	−571	−543
Total liquidity					2,351	2,474	2,711	2,886	2,882	3,102	3,149
	M4				2,298	2,401	2,649	2,814	2,801	3,031	3,063
		M3 (peso liquidity)			1,670	1,725	1,884	2,053	2,058	2,212	2,254
		Foreign currency deposits, residents			628	676	766	762	744	818	809
	Other liabilities				53	73	62	72	80	71	86
					(12-month percent change)
Net foreign assets					36.0	22.1	7.9	32.3	31.4	31.7	35.5
Net domestic assets					2.3	0.1	10.2	−3.0	−7.4	0.5	0.1
	Net domestic credit				4.8	4.8	9.5	−4.1	−6.1	1.1	−0.5
		Public sector			12.8	11.0	18.5	−8.5	−16.4	5.0	2.6
		Private sector			1.2	1.8	4.6	−1.5	0.0	−1.0	−2.2
M4					8.9	4.5	10.3	6.2	4.1	11.1	11.7
M3					9.5	3.3	9.2	9.0	7.1	12.3	14.3
					(In billions of pesos; unless otherwise indicated)
Memorandum items:
	Gross domestic credit from deposit money banks				2,151	2,322	2,558	2,527	2,445	2,581	2,479
		Private sector			1,470	1,498	1,566	1,543	1,516	1,526	1,512
			(12-month percent change)		1.3	1.9	4.6	−1.5	0.0	−1.1	−2.2
		Public sector			681	824	992	985	929	1,056	967
			(In percent of total gross credit)		31.6	35.5	38.8	39.0	38.0	40.9	39
					(In billions of U.S. dollars)
Net foreign assets					10.4	12.1	12.8	18.1	21.5	23.1	25.7
	Central bank				10.3	11.5	12.1	15.9	18.3	18.9	19.9
	Deposit money banks				0.1	0.7	0.7	2.2	3.2	4.2	5.8
Foreign currency deposits residents					11.8	12.2	13.1	14.4	14.5	15.4	16.1
Dollar-denominated credit to residents					9.9	9.7	11.2	10.0	10.1	10.9	10.4
	Public sector				4.8	6.4	6.7	6.1	6.2	6.8	6.3
	Private sector				5.2	3.3	4.5	3.9	3.9	4.1	4.1
					(In percent; unless otherwise indicated)
	Dollar denominated credit / dollar deposits				84.2	79.7	85.7	69.7	69.8	70.8	64.4
	Dollar denominated credit to public sector / dollar deposits				40.4	52.6	51.2	42.5	42.9	44.3	38.9
	Exchange rate (peso per dollar; end-period)				53.1	55.6	56.3	53.1	51.3	53.6	50.4

Sources: Philippine authorities; CEIC, and Fund staff estimates.

^¹/The Central Bank-Board of Liquidators was established in 1993 to absorb the debts of the old central bank.

Table 4.

Philippines: Monetary Survey, 2002–06

					2002	2003	2004	2005	2006
					Dec.	Dec.	Dec.	Dec.	Mar.	Jun.	Sep.
							(In billions of pesos)
Net foreign assets					551	673	727	961	1,102	1,239	1,295
	Central bank				547	637	690	846	938	1,013	1,000
		Net international reserves			693	782	820	937	1,024	1,091	1,072
		Medium and long-term foreign liabilities			146	145	130	91	86	78	72
	Deposit money banks				4	37	37	115	164	226	295
Net domestic assets					1,799	1,801	1,985	1,925	1,779	1,863	1,854
	Net domestic credit				2,207	2,314	2,533	2,428	2,292	2,434	2,397
		Public sector credit			727	807	956	875	765	898	875
			National Government		590	620	764	652	536	665	648
				Credits	749	807	923	852	797	915	889
				Foreign exchange receivables	7	7	15	18	17	4	4
				Treasury IMF Accounts	−50	−58	−65	−66	−66	−60	−60
				Deposits	−117	−137	−109	−152	−213	−194	−185
			Local government and others		132	184	191	222	229	233	227
			Claims on CB-BOL ^1/		6	4	1	0	0	0	0
			Private sector credit		1,480	1,507	1,577	1,553	1,526	1,536	1,522
		Other items net			−408	−513	−548	−503	−513	−571	−543
Total liquidity					2,351	2,474	2,711	2,886	2,882	3,102	3,149
	M4				2,298	2,401	2,649	2,814	2,801	3,031	3,063
		M3 (peso liquidity)			1,670	1,725	1,884	2,053	2,058	2,212	2,254
		Foreign currency deposits, residents			628	676	766	762	744	818	809
	Other liabilities				53	73	62	72	80	71	86
					(12-month percent change)
Net foreign assets					36.0	22.1	7.9	32.3	31.4	31.7	35.5
Net domestic assets					2.3	0.1	10.2	−3.0	−7.4	0.5	0.1
	Net domestic credit				4.8	4.8	9.5	−4.1	−6.1	1.1	−0.5
		Public sector			12.8	11.0	18.5	−8.5	−16.4	5.0	2.6
		Private sector			1.2	1.8	4.6	−1.5	0.0	−1.0	−2.2
M4					8.9	4.5	10.3	6.2	4.1	11.1	11.7
M3					9.5	3.3	9.2	9.0	7.1	12.3	14.3
					(In billions of pesos; unless otherwise indicated)
Memorandum items:
	Gross domestic credit from deposit money banks				2,151	2,322	2,558	2,527	2,445	2,581	2,479
		Private sector			1,470	1,498	1,566	1,543	1,516	1,526	1,512
			(12-month percent change)		1.3	1.9	4.6	−1.5	0.0	−1.1	−2.2
		Public sector			681	824	992	985	929	1,056	967
			(In percent of total gross credit)		31.6	35.5	38.8	39.0	38.0	40.9	39
					(In billions of U.S. dollars)
Net foreign assets					10.4	12.1	12.8	18.1	21.5	23.1	25.7
	Central bank				10.3	11.5	12.1	15.9	18.3	18.9	19.9
	Deposit money banks				0.1	0.7	0.7	2.2	3.2	4.2	5.8
Foreign currency deposits residents					11.8	12.2	13.1	14.4	14.5	15.4	16.1
Dollar-denominated credit to residents					9.9	9.7	11.2	10.0	10.1	10.9	10.4
	Public sector				4.8	6.4	6.7	6.1	6.2	6.8	6.3
	Private sector				5.2	3.3	4.5	3.9	3.9	4.1	4.1
					(In percent; unless otherwise indicated)
	Dollar denominated credit / dollar deposits				84.2	79.7	85.7	69.7	69.8	70.8	64.4
	Dollar denominated credit to public sector / dollar deposits				40.4	52.6	51.2	42.5	42.9	44.3	38.9
	Exchange rate (peso per dollar; end-period)				53.1	55.6	56.3	53.1	51.3	53.6	50.4

Sources: Philippine authorities; CEIC, and Fund staff estimates.

^¹/The Central Bank-Board of Liquidators was established in 1993 to absorb the debts of the old central bank.

Table 5.

Philippines: Medium-Term Outlook, 2004–11

(Currently identified measures scenario)

Sources: Philippine authorities; and Fund staff estimates and projections.

^¹/Defined as difference between gross investment and current account.

^²/Nonfinancial public sector includes the national government, CB-BOL, 14 monitored government-owned enterprises, social security institutions, and local governments.

^³/The sum of all nonfinancial public sector revenue net of intra-public sector payments. It is assumed that 80 percent of Bureau of Treasury revenue represents interest and dividends from other parts of the nonfinancial public sector. Privatization receipts are excluded.

^⁴/Defined as difference between nonfinancial public sector revenue and primary balance.

^⁵/Fund definition. Excludes privatization receipts of the national government, and includes net deficit from restructuring the central bank.

^⁶/Debt is consolidated (net of intra-nonfinancial public sector holdings of debt).

^⁷/Gross reserves less gold and securities pledged as collateral against short-term liabilities.

^⁸/Reserves as a percent of short-term debt (including medium and long-term debt due in the following year). Both reserves and debt were adjusted for gold-backed loans.

^⁹/Defined as the current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at the end of the previous period.

^¹⁰/Defined as external debt plus liabilities of foreign banks in the Philippines to their headquarters, branches and agencies, some external debt not registered with the central bank and private capital lease agreements.

Table 5.

Philippines: Medium-Term Outlook, 2004–11

(Currently identified measures scenario)

				2004	2005	2006	2007	2008	2009	2010	2011
					Est.	Staff Proj.
					(Percentage change; unless otherwise indicated)
GDP and prices
	Real GDP			6.2	5.0	5.5	5.8	5.8	5.9	5.9	5.9
	GDP per capita (US$)			1,038	1,154	1,349	1,506	1,594	1,729	1,876	2,036
	CPI (average)			6.0	7.6	6.2	4.0	4.0	4.2	4.3	4.5
Labor
	Employment (average, million)			31.6	32.3	33.4	34.5	35.7	37.0	38.3	39.7
	Employment (average)			3.2	2.2	3.3	3.5	3.5	3.5	3.5	3.5
	Unemployment rate (old definition, average, percent)			11.8	11.4	10.2	9.7	9.2	8.6	8.1	7.5
					(In percent of GDP, unless otherwise indicated)
Investment and saving
	Gross investment			16.8	15.1	14.9	15.0	15.7	16.1	16.5	17.1
		Private		14.5	12.9	12.6	12.7	13.1	13.7	14.0	14.5
		Public		2.3	2.3	2.3	2.3	2.6	2.4	2.5	2.6
	National saving ^1/			18.7	17.1	17.7	17.1	17.6	17.7	17.9	18.0
		Private ^1/		21.2	16.7	16.1	15.3	16.0	16.9	17.1	17.3
		Public		−2.5	0.4	1.6	1.8	1.6	0.8	0.7	0.7
	Foreign saving			−1.9	−2.0	−2.9	−2.1	−1.9	−1.6	−1.4	−0.9
Public finances
	Nonfinancial public sector balance ^2/			−5.0	−2.1	−0.9	−0.7	−1.2	−1.7	−2.0	−2.1
		Primary balance		1.6	4.3	5.2	4.6	3.8	3.1	2.7	2.3
			Revenue and grants ^3/	20.5	22.1	23.2	23.2	23.0	22.3	22.1	21.9
			Expenditure (primary) ^4/	19.0	17.8	18.0	18.6	19.2	19.2	19.4	19.5
		Interest		6.5	6.4	6.1	5.2	5.0	4.8	4.6	4.4
	Nonfinancial public sector gross financing			28.1	24.4	23.4	19.1	19.0	18.3	18.5	17.8
			Domestic	25.1	19.7	19.7	15.5	15.8	14.8	15.5	15.2
			Foreign currency	3.0	4.6	3.7	3.5	3.2	3.5	2.9	2.6
	National government balance (authorities definition)			−3.8	−2.7	−1.5	−1.0	−1.3	−1.7	−1.9	−2.0
	National government balance ^5/			−4.2	−3.0	−1.9	−1.3	−1.6	−2.0	−2.2	−2.2
	Nonfinancial public sector debt ^6/			95.4	86.3	77.4	72.7	69.9	66.2	63.1	60.2
External sector
	Export value (percent change)			9.8	3.3	10.6	6.6	6.1	6.0	5.8	5.5
	Import value (percent change)			8.0	8.0	11.4	7.5	6.4	6.8	6.6	6.5
	Trade balance			−6.6	−7.9	−7.7	−7.6	−7.5	−7.5	−7.5	−7.5
	Current account			1.9	2.0	2.9	2.1	1.9	1.6	1.4	0.9
	FDI (net, US$ billions)			0.1	1.2	1.9	2.2	1.1	1.1	1.1	1.1
	Reserves, adjusted (US$ billions) ^7/			15.2	18.0	22.0	24.2	25.7	27.3	28.7	29.6
	Reserves / Short-term liabilities, adjusted ^8/			125.8	120.1	159.5	160.4	165.0	166.6	168.0	165.3
	Gross external financing requirements (US$ billions) ^9/			12.5	11.1	12.1	11.0	12.4	13.0	14.0	16.3
	Total external debt (in percent of GDP) ^10/			70.5	62.6	51.5	46.7	44.4	41.2	38.9	36.3
	Debt service ratio (in percent of exports of G&S)			19.7	18.5	19.6	19.2	20.3	19.8	19.4	21.5