BEYOND BUDGET

Assalamu alaikum wa Rahmatullahi wa Barakatuh.
 

Last week, I joined Finance Secretary Benjamin Diokno, Bangko Sentral ng Pilipinas Governor Eli Remolona, Jr., and National Economic and Development Authority Secretary Arsenio Balisacan in receiving the Article IV Consultation Mission Report of the International Monetary Fund (IMF) presented by the IMF Mission Team headed by Mission Chief Shanaka Jay Peiris. Their team was in the country for a week for this year’s preliminary assessment of the Philippine economy and its outlook, and to give recommendations for our country’s growth. The findings are still to be presented to the IMF Executive Board for further discussions and decision-making.

I am proud to share that during the concluding principals’ meeting for the IMF Article IV Consultation Mission, the IMF commended our government for introducing key structural reforms crucial to sustaining the country’s growth gains.

The preliminary findings, which highlighted the nation’s robust post-pandemic economic recovery and the potential of our public financial management reforms as well as other governmental efforts to spur development, offer vital insights into our progress in meeting our economic targets.

But the good news is that the IMF concluded and even announced in their press release that “the Philippines economy has emerged from the pandemic strongly.” 
It is comforting to know that our efforts for strong economic growth even amidst the challenges during and immediately following the pandemic have born fruit! Indeed, despite external shocks, including the war in Ukraine, global financial market volatility, and trade fluctuations, the Philippines was able to weather headwinds and post a Gross Domestic Product (GDP) growth rate of 7.6 percent in 2022, surpassing expectations and besting neighboring Southeast Asian countries such as Indonesia (5.3 percent), Singapore (3.6 percent), and Thailand (2.6 percent). 

I attribute our success to our first-ever Medium-Term Fiscal Framework (MTFF), which aptly guided us in managing our Covid-19 exit, as well as to the decisive leadership much needed, especially during the pandemic, with respect to monetary policy rates and fiscal consolidation. I also credit the eight-Point Socioeconomic Agenda, which has also guided  us as we introduced targeted support programs to ease the impact of higher food and fuel prices, including fuel subsidy programs and cash transfers to vulnerable households.

The IMF team also commended the Build, Better, More infrastructure development program, as well as the Public-Private Partnership (PPP) guidelines that have unified and institutionalized best practices that will help boost investments and raise long-term growth. Mission Chief Peiris said, “The renewed emphasis on financing the country’s infrastructure gaps through PPPs is well placed and the new PPP Code is welcome in this regard.”

The IMF also views the proposed amendments to the Government Procurement Reform Act as an important step in strengthening the institutional and legal foundations for open and competitive public procurement. The proposed amendments – studied and initiated by the Department of Budget and Management – include the adoption of a Green Public Procurement Strategy and the installation of the upgraded “modern Philippine Government Electronic Procurement System” or mPhilGEPS.

The National Government Rightsizing Program and the Integrated Public Financial Management Information System (IFMIS), which will digitalize the public financial management systems, are two additional reforms the IMF also noted for improving bureaucratic efficiency.

The country’s growth outlook remains robust. The IMF underscored that though our growth moderated from 7.6 percent in 2022 to 4.3 percent in Q2 2023, it was largely due to external headwinds and fiscal underspending, among other factors. 

So in spite of our current economic challenges, I was pleased to see that our economic outlook remains optimistic, with the IMF even adding that the latest GDP dip may be the lowest point. They expect our economy to improve, with GDP growth rebounding to 5.3 percent by year-end and reaching 6.0 percent in 2024. These figures are higher than the average ASEAN-5 growth outlook of 4.6 percent and 4.9 percent for 2023 and 2024, respectively. Meanwhile, inflation is expected to approach target in early 2024, with headline inflation expected to average 6.0 percent in 2023 and converge to the target by Q1 2024. The current account deficit is also expected to narrow to 3.0 percent of GDP in 2023 and 2.6 percent in 2024, driven by lower commodity prices, and higher electronic and service exports. 

But best of all, the IMF confirmed that the Philippine economy is on track in meeting the targets outlined in our MTFF, including the reduction of the country’s national government (NG) deficit to GDP ratio to three percent by 2028 and less than 60 percent NG debt-to-GDP ratio by 2025. Fiscal consolidation, hence, is expected to continue in 2024.
The IMF also welcomed the creation of the Maharlika Investment Fund and even noted its potential in helping close infrastructure gaps. 

The economic team recognizes and appreciates the IMF’s recommendations for our policy goals to include maintaining well-anchored inflation expectations, boosting financial and economic resilience to adverse shocks, further encouraging investments, and enacting measures to boost productivity growth and improve the standard of living for all Filipinos.
We are aligned with the recommendations of the IMF to boost our country’s growth potential by reducing infrastructure and education gaps, promoting foreign investment, and addressing supply-side issues in the agriculture sector and in fact we have already been addressing these. Reforms to address non-tariff barriers, restart responsible mining, and improve ease of doing business are also already being undertaken. And our digitalization initiatives, currently underway, are set to support the service sector-led growth engine, promote financial inclusion, and increase government service efficiency.

Beyond budget, we – the Philippine Economic Team – thank the IMF Mission Team for their thorough study and analysis, and for their invaluable insight regarding our structural reforms and initiatives to drive economic growth.  Indeed, this has energized us to work harder and improve the economy further to achieve our Agenda for Prosperity.

(Amenah F. Pangandaman is the current Secretary of the Department of Budget and Management.)