The Department of Finance (DOF) welcomed the assessment of the International Monetary Fund (IMF) that sustained reforms, disciplined macroeconomic policies, and sound fundamentals helped the Philippine economy to recover swiftly from contraction during the pandemic.
Following a series of meetings with Philippine authorities on September 12-26, 2022, the IMF found the country’s near-term fiscal stance as appropriate and agreed that there could be flexibility over the medium-term.
The IMF holds annual bilateral discussions with member countries pursuant to Article IV of IMF’s Articles of Agreement. The meetings with Philippine authorities sought to discuss the country’s economic and financial developments and policies.
Considering the IMF’s findings, the government underscored the value of implementing its first-ever Medium-Term Fiscal Framework (MTFF). The MTFF provides the economic team with the right fiscal anchors and medium-term revenue strategy that would further support fiscal credibility and debt sustainability.
The DOF also agrees with the IMF that there is a need to implement fiscal consolidation and enhance revenue mobilization measures through high-quality and high-yielding tax reforms.
Finance Secretary Benjamin Diokno noted, however, that the timing and pace of implementation of tax reforms should be carefully studied to avoid additional inflationary pressures on the country.
“In case growth falls below the baseline, I agree that fiscal policy can be deployed to support the economy by slowing the pace of fiscal consolidation, but the Philippine government will remain committed to MTFF targets over the medium term. The government shall be guided by the principles of coherent strategies, policy discipline, and fiscal sustainability,” said Secretary Diokno.
The DOF also emphasized the importance of non-monetary measures on top of monetary policy to help reduce high inflation and mitigate its adverse effects, particularly on the most vulnerable sectors.
To this end, the DOF works closely with the Bangko Sentral ng Pilipinas (BSP) to deploy a combination of policy levers, including raising the policy interest rates and smoothening exchange rate movements, implementing measures to address supply shocks, and providing targeted subsidies for vulnerable sectors.
“We expect the economy to continue to recover in 2023 on the back of strong domestic demand. This will be supported by the further reopening of the economy, a sound financial system, and steady improvement in labor market conditions,” said Secretary Diokno.
He said that investments in agriculture, mining, and infrastructure development are also expected to boost growth.
He added that structural reforms pursued during the pandemic would translate to more investments in the economy.
The government’s current account deficit remains financeable due to overseas Filipinos’ cash remittances, business process outsourcing (BPO) export revenues, tourism receipts, and more than adequate liquidity buffer of international reserves.
Secretary Diokno said that the government is prepared to pursue measures to sustain strong growth, reduce inflation, and further improve the labor and employment conditions. This is despite a global economy that is expected to further decelerate next year.
“An action plan, including the soon-to-be-released Philippine Development Plan, will prepare the economy for the expected global economic slowdown due to global financial tightening, the Russia-Ukraine war, and the deceleration of the Chinese economy,” Secretary Diokno explained.