- The Philippine economy remains resilient despite the challenges of an external environment characterized by heightened policy uncertainty. GDP growth is expected to reach 5.5 percent in 2025 before accelerating to 5.8 percent next year, but downside risks warrant close attention.
- The Bangko Sentral ng Pilipinas (BSP) has successfully addressed inflationary pressures, supported by concerted measures of the government to reduce food prices. With inflation and inflation expectations returning to target, the BSP has room to continue to reduce the policy rate. The prospect of further monetary easing, and lower food prices will underpin the recovery in consumption.
- Adhering to the medium-term fiscal consolidation path remains critical and requires sustained and durable efforts to mobilize tax revenues and ensure efficiency of government spending.
Washington, DC: An International Monetary Fund team led by Ms. Elif Arbatli Saxegaard held meetings in Manila during May 14-20, 2025, to discuss recent economic and financial developments and the outlook for the Philippine economy. At the end of the visit, Ms. Arbatli Saxegaard issued the following statement:
"The Philippine economy remains resilient despite external challenges. While the announced US tariffs are expected to have a limited direct impact, the higher global policy uncertainty and lower growth in major economies will weigh on growth, which is projected at 5.5 percent in 2025 and 5.8 percent next year. Consumption is expected to be supported by monetary policy easing amid lower inflation, and low unemployment; however, private investment is projected to remain subdued. Risks are tilted to the downside, driven mainly by external factors but also by the weaker-than-expected outturn in the first quarter. The current account deficit is projected to narrow from 3.8 percent of GDP in 2024 to 3.4 percent of GDP in 2025, supported by weaker commodity prices. Reserves have declined since peaking in September 2024 but remain adequate at $105.3 billion as of April 2025.
"The Bangko Sentral ng Pilipinas (BSP) has room to continue to reduce the policy rate and firmly move to a neutral stance. Headline inflation fell to 1.4 percent (y/y) in April 2025, largely driven by the earlier tightening cycle and lower food prices supported by the reduction in rice tariffs last year and other administrative measures by the government, while core inflation declined to 2.2 percent. With inflation expectations well-anchored, inflation is projected to stay near the lower end of the target band at 2.2 percent in 2025 and risks are broadly balanced. Risks of higher inflation include adverse weather and other supply shocks, including potential disruptions in global supply chains, and risk-off shocks which could contribute to currency depreciation. On the other hand, risks of weaker global demand prospects and excess capacity in certain sectors could pose deflationary risks, including through lower commodity prices. Ongoing reforms to develop the Philippines' fixed income and money markets, including the launch of the interest rate swap market, enhanced Primary Dealer System, and consolidation of bond issuance into fewer but benchmark-sized instruments are welcome and will help enhance monetary policy transmission.
"The fiscal deficit declined from 6.1 percent of GDP in 2023 to 5.7 percent in 2024, largely in line with the government's latest fiscal program and the overall fiscal stance is expected to be broadly neutral in 2025. The medium-term fiscal consolidation remains appropriate and should be supported by a sustainable plan to raise tax revenues and implement expenditure reforms to ensure that deficit targets are met and to create more space for priority spending. Tax reforms could prioritize raising excise taxes, enhancing VAT efficiency, improving tax administration, and ensuring effective control of tax incentives. Efforts to enhance public financial management and manage fiscal risks should continue. Enhancing capacity at the local government level to execute additional spending responsibilities in line with the higher revenues allocated to them in the decentralization process is critical to support growth.
"Systemic financial risks remain contained, credit growth remains healthy, and the banking system has strong capital and liquidity buffers. Nonetheless, banks' exposures to commercial and residential real estate, leveraged non-bank financial institutions and a fast-growing consumer credit market warrant continued close monitoring. Adjusting macroprudential policy as credit picks up, including by moving toward a positive neutral level for the countercyclical capital buffer can help preempt the build-up of vulnerabilities. Important progress has been made in addressing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) issues, as exemplified by the Philippines' welcome exit from the Financial Action Task Force (FATF) grey list in February 2025. The current momentum should be maintained.
"The Philippine economy holds significant potential with a sizable demographic dividend and abundant natural resources. The government has been undertaking reforms to reduce infrastructure, health and education gaps, promote foreign direct investment, and diversify the country's export markets. 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. We look forward to continuing the dialogue in the coming months in the context of the 2025 Article IV Consultation."
