IMF on the Philippines: Cautious Optimism, Hard Constraints

PHILIPPINES - In Brief 30 Dec 2025 by Diwa Guinigundo

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The International Monetary Fund (IMF) completed its Article IV mission to the Philippines from mid-September to 1 October 2025, with the Executive Board concluding the consultation on 24 November 2025. The staff report, released on 15 December with the consent of Philippine authorities, reflects a cautiously optimistic outlook tempered by clear macroeconomic, fiscal, and governance constraints. The IMF underscored three interrelated policy concerns. First, growth momentum is weakening. The Fund revised its 2025 GDP growth forecast downward to 5.1%, from 2024’s 5.7%, citing weaker external demand and the adverse impact of higher tariffs on exports and investment. Growth is projected to rebound modestly to 5.6% in 2026, still below the lower bound of the government’s targets of 5.5–6.5% for 2025 and 6.0–7.0% thereafter. The message is clear: absent stronger productivity-enhancing reforms, the economy is drifting toward its estimated potential rather than decisively exceeding it. Second, inflation risks have eased, but policy signals are mixed. Inflation is projected at 1.7% in 2025 and 2.8% in 2026, broadly consistent with, though not identical to, Bangko Sentral ng Pilipinas (BSP) projections. Yet the IMF continues to characterize monetary policy as “restrictive,” even after the policy rate was cut to 4.5% in December 2025 from a peak of 6.5%, alongside planned reductions in reserve requirements amid ample liquidity. The Fund appropriately acknowledges the government’s efforts to curb food prices which is critical in a country where supply-side food shocks dominate inflation dynamics, but its assessment raises questions about the calibration and transmission of easing i...