- The Philippine economy is expected to remain resilient, despite losing some momentum amid external headwinds, growing by 5.4 percent in 2025 before accelerating modestly to 5.7 percent next year. However, downside risks warrant close attention.
- The Bangko Sentral ng Pilipinas (BSP) monetary policy tightening and lower rice tariffs have successfully brought back inflation within the target band. There is room to further ease monetary policy given the favorable inflation outlook and elevated growth risks.
- More gradual medium-term fiscal consolidation is appropriate and should be underpinned by durable revenue mobilization efforts and public financial management reforms to enhance budgetary accountability and transparency.
Washington, DC: An International Monetary Fund team, led by Ms. Elif Arbatli Saxegaard, held meetings in Manila from September 18 to October 1, 2025, for the 2025 Article IV Consultation. At the conclusion of the discussions, Ms. Arbatli Saxegaard issued the following statement:
"The Philippine economy has achieved successful disinflation, and growth remains resilient despite negative external spillovers. Growth is expected to moderate to 5.4 percent in 2025 and accelerate to 5.7 percent in 2026, supported by monetary easing and recent legislative measures to promote private investment. Inflation is projected to average 1.6 percent in 2025 and to stay around the mid-point of the BSP's target band in 2026. Core inflation is expected to remain muted at 2.5 percent in 2026, in line with a slightly negative output gap. The current account deficit is projected to narrow modestly over the medium term.
"Risks to the growth outlook are tilted to the downside. The main external risks stem from prolonged global trade policy uncertainty, geopolitical tensions, and disruptive financial market corrections. On the domestic front, more frequent and intense climate shocks would cause notable macroeconomic losses. On the upside, accelerated implementation of structural and governance reforms would support investor confidence and the fiscal multiplier and raise potential growth. Risks around inflation are broadly balanced.
"Following substantial expenditure restraint in 2025, the 2026 budget targets a broadly neutral fiscal stance which is appropriate given the cyclical position of the economy and the low risk of sovereign stress. Over the medium term, the authorities should continue implementing gradual fiscal consolidation, in line with their targets, to replenish fiscal buffers and support external balance.
"The authorities should consider implementing concrete and durable tax measures to limit the need for restraint in priority spending which tends to have a larger impact on growth and disproportionately impacts the vulnerable. Efforts to strengthen budget credibility by enhancing public financial management remains critical, including strengthening investment planning, and project appraisal, selection, management, and procurement to enhance accountability.
"The BSP has room for a slightly more accommodative stance to help bring inflation back to the target faster and reduce economic slack amid elevated downside risks to growth. Policy will need to remain data dependent amidst prevailing uncertainties around the output gap and the neutral rate, and two-sided risks to inflation. The exchange rate should continue to play its role as a shock absorber amid rising global volatility. The BSP's efforts to incorporate climate considerations in monetary policy are welcome and should continue. Reforms to deepen capital markets and enhance monetary policy transmission are bearing fruit and should continue.
"Overall systemic financial risks remain moderate, and the banking system has strong capital and liquidity buffers. Nonetheless, vulnerabilities in the real estate sector, strong bank interconnectedness with complex conglomerate structures, and fast-growing consumer credit warrant close monitoring. Enhancing the macroprudential policy framework could help preempt the build-up of vulnerabilities and raise buffers. Progress to strengthen crisis management and resolution frameworks should continue.
"The Philippine economy holds significant potential with a sizable demographic dividend and abundant natural resources. Recent reforms to reduce infrastructure gaps and promote foreign direct investment are welcome; effective implementation remains key to reaping their benefits. Negotiating and implementing deep trade agreements can further enhance global value chain integration and resilience but will require steps to lower non-tariff barriers. Enhancing fiscal governance and the rule of law and reducing corruption vulnerabilities are critical for inclusive and sustainable growth. These reforms should be complemented by strengthening social protection programs, promoting digitalization, and increasing resilience to climate shocks and natural disasters.
"The IMF team would like to thank officials in the government, the central bank, other public agencies, and representatives of the private sector for their constructive and open engagement."
