An International Monetary Fund team led by S. Jayanath Peiris, Asia and Pacific Department Division Chief of Regional Studies in charge of the flagship Regional Economic Outlook report, was just in the country to conduct discussions on the Philippine economy for the 2023 Article IV Consultation from 21 September to 1 October 2023.

The team has projected growth — which dropped to 4.3 percent in the second quarter of 2023 from last year's high of 7.6 percent — bouncing back to 5.3 percent by yearend, then growing to 6.0 percent in 2024, with accelerated spending and if external demand for Philippine exports improves.

Downside risks that could mar such an outlook include high global and domestic inflation that would need a tightening of monetary policy, a global slowdown putting downward pressure on goods and services exports, the heating up of geo-political tensions, and depreciation pressures stemming from capital outflows amid volatile market conditions.

The other side of the coin would be a more resilient US economy and a rebound in domestic demand backed by easing financial conditions.

Marveling at the significant growth experienced by the Philippines in the past two decades, the IMF team led by Peiris said sustaining past gains will depend on further investments to diversify exports, promote the acquisition of new skills by the labor force, and enhance connectivity by harnessing the digital economy across the archipelago.

Taking note of the Philippines' entry into the Regional Comprehensive Economic Partnership, Peiris' team stressed that maximizing the potential benefits of the country's joining the free trade group and opening up the country to foreign investments will require government's acting on reforms posthaste to address supply-side issues in the agricultural sector, removing non-tariff barriers connected with administrative procedures and regulations, restarting responsible mining to satisfy the increasing demand for green minerals, and intensifying efforts to improve ease of doing business in the country.

It also said that the Maharlika Investment Corporation, created to manage and invest in the controversial Maharlika sovereign fund, could contribute to the push for closing infrastructure gaps and green investments by adopting best practices in strategic investment and accountability frameworks.

The team said that particular care should be taken to ensure that structural reforms in reducing poverty levels, addressing inequality through quality job creation, and expanding social protection programs — including the recently piloted Food Stamp program to complement the 4Ps — remain focused.

The IMF team was particularly concerned about the high vulnerability of the Philippine economy to extreme weather-related incidents, underscoring the need to address climate change impacts through such approaches as allocating public investment in resilient infrastructure and the introduction of carbon pricing mechanisms, that is, curbing greenhouse gas emissions by imposing fees for emitting and/or offering an incentive for casting less.

It also took note of the current core inflation situation, which the team observed "remains elevated," with inflation risks tilted to the upside, including higher commodity prices that could lead to second-round effects."

A more acerbic commentary on the prevailing economic situation came from former Deputy Governor of the Bangko Sentral ng Pilipinas' Monetary and Economic Sector, Diwa C. Guinigundo.

Guinigundo, who had been IMF alternate executive director from 2001 to 2003, indicated concern over the release of the Philippine Statistics Authority's "disconcerting" announcement that Philippine headline inflation for September had hit 6.1 percent.

"What this number is telling us is that one, it is several basis points higher than the 5.3 percent inflation in August; two, it kept the year-to-date average inflation at 6.6 percent, way above the government's 2-4 percent inflation target and the latest BSP forecast of 5.8 percent; and three, if this thread is sustained, the slowdown in real gross domestic product to 4.3 percent that we witnessed in Q2 is likely to continue because inflation depresses domestic consumption and discourages investment," said Guinigundo.

The worrying thing, he said, is that such momentum doesn't seem to be letting up: "The month-on-month inflation based on the PSA report is 1.1 percent, which, when translated to annual growth, represents 13 percent inflation."

The veteran central banker said that the breakdown of the inflation dynamics is "a mirror image of the failure of governance as far as controlling inflation is concerned."