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© 2009 International Monetary Fund
February 2009
IMF Country Report No. 09/62
Philippines: 2008 Article IV Consultation—Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Philippines
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2008 Article IV consultation with the Philippines the following documents have been released and are included in this package:
The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on November 14, 2008 with the officials of the Philippines on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 22, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement of January 14, 2009, updating information on recent developments
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its January 16, 2009 discussion of the staff report that concluded the Article IV consultation.
A statement by the Executive Director for the Philippines.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
PHILIPPINES
Staff Report for the 2008 Article IV Consultation
Prepared by the Staff Representatives for the 2008 Consultation with the Philippines
Approved by James Gordon and Tessa van der Willigen
December 22, 2008
Discussions: Manila, November 5–14, 2008. The mission met: Finance Secretary Teves, Bangko Sentral ng Pilipinas (BSP) Governor Tetangco, Budget Management Secretary Andaya, National Economic Development Authority Secretary Recto, other senior government officials, and private sector representatives.
Team: Messrs. I.H. Lee (Head), Eskesen, Iizuka (all APD), Botman (FAD), Halikias (SPR), Ree (MCM), and Baqir (Resident Representative). Mr. Warjiyo (OED) attended some of the meetings.
Consultation focus: Near-term financial sector and macroeconomic policies to safeguard domestic and external stability in the context of adverse global trade and financial spillovers. Medium-term policies to lower vulnerability.
Policy dialogue: In recent years, the exchange of views with the Philippine authorities has been frank and constructive. Fund advice has found particular traction in the areas of fiscal consolidation, building a credible monetary policy regime, and sustaining reforms of the financial system and supervision.
Outreach: The mission held a press conference on November 14, which was well attended and received extensive local media coverage.
Exchange rate: Largely market determined. The Philippines has accepted the obligations under Article VIII, Sections 2, 3, and 4, and maintains an exchange rate free of restrictions on payments and transfers for current international transactions.
Data: Data provision is adequate overall, but shortcomings remain. The 2004 Data ROSC identified national accounts and balance of payments statistics as weak. The authorities have made progress in these areas with technical assistance from STA.
Contents
Executive Summary
I. Introduction
II. Recent Economic Developments
III. Outlook and Risks
IV. Policy Discussions
A. Safeguarding Financial Stability—Tackling Global Spillovers
B. Monetary and Exchange Rate Policies
C. Fiscal Policy
V. Staff Appraisal
Boxes
1. How Exposed is the Philippines to a U.S. Slowdown
2. Vulnerabilities if Downside Risks Materialize
3. Recent Tax Policy Reforms and Options for Tax Base Broadening
Tables
1. Selected Economic Indicators, 2004−09
2. National Government Cash Accounts, 2005−09
3. Balance of Payments, 2004−09
4. Depository Survey, 2006−08
5. Medium-Term Outlook, 2006−13
6. Banking Sector Indicators, 2003−08
7. Indicators of External Vulnerability, 2003−09
Appendix
I. Debt Sustainability Analysis
Executive Summary
Background: GDP growth is projected to decline to 4.4 percent in 2008 and further to 3½ percent in 2009, driven by softening external and private domestic demand. A deepening of the global economic downturn presents downside risks to this outlook. Inflation is expected to reach 9 ½ percent in 2008 and decline to 6 percent in 2009, led by a decline in commodity prices and weaker demand.
Policy issues: In light of the turbulence in the world economy and financial markets, the discussions centered primarily on the spillovers from the worsening external environment and policies to manage the associated near-term risks.
Staff’s views: The BSP should continue to closely monitor the banking sector, including off-balance sheet activities. The BSP should also stand ready to apply existing liquidity facilities flexibly. The current prompt corrective action (PCA) framework is largely adequate to deal with spillovers, but a more rules-based approach could be considered over the medium term, and BSP staff should be legally protected against litigation. The proposed doubling in deposit insurance in a bill before Congress is welcome, but a provision allowing greater flexibility to raise the ceiling if needed should also be introduced. The Philippine Deposit Insurance Corporation (PDIC) should be recapitalized and the banking resolution tool kit could be further enhanced. The current neutral monetary stance appropriately balances the risks to inflation and growth, but there is scope to ease monetary policy if downside risks to growth materialize. The exchange rate is broadly in line with fundamentals, posing no threat to external stability. Fiscal policy could help cushion the current slowdown, but credibility considerations related to fiscal discipline leaves only room for a measured loosening. Looking ahead, the introduction of a formalized medium-term fiscal framework and streamlining of government-owned and controlled corporations would support fiscal consolidation efforts.
Authorities’ views: Bank surveillance has been strengthened and steps have been taken to reduce risks related to off-balance sheet activities. There was agreement on the importance of legal protection of supervisors, the need to recapitalize the PDIC, and the merit in having flexibility to raise deposit insurance coverage further if needed. However, the current prompt corrective action and banking resolution frameworks were considered appropriate and there was no immediate need for enhancements. It was too early to ease monetary policy considering the high level of inflation. Moreover, a lowering of interest rates could add to downward pressures on the exchange rate, which would also be inflationary. However, there would be room to ease rates if downside risks to growth materialize and inflation expectations decline sufficiently. The exchange rate was assessed to be in line with longer-term fundamentals, similar to staff’s assessment. Fiscal policy should play a counter-cyclical role, but there was agreement that near-term fiscal easing should be limited to preserve credibility. Fiscal consolidation remains a key medium-term policy objective.
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INTERNATIONAL MONETARY FUND
PHILIPPINES
Staff Report for the 2008 Article IV Consultation—Informational Annex
Prepared by the Asia and Pacific Department
December 22, 2008
Contents
I. Fund Relations
II. Relations with the World Bank Group
III. Relations with the Asian Development Bank
IV. Statistical Issues
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INTERNATIONAL MONETARY FUND
PHILIPPINES
Staff Report for the 2008 Article IV Consultation
Supplementary Information
Prepared by the Asian and Pacific Department (In consultation with SPR)
Approved by James Gordon and Tessa van der Willigen
January 14, 2009
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Public Information Notice (PIN) No. 09/21
FOR IMMEDIATE RELEASE
February 17, 2009
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
IMF Executive Board Concludes 2008 Article IV Consultation with the Philippines
On January 16, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Philippines.1
