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Philippines: Staff Report for the 2018 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
September 2018
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Information about Asia and the Pacific Asia y el Pacífico
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Fund Relations

(As of July 31, 2018)

Membership Status: Joined December 27, 1945; Article VIII

General Resources Account

SDR MillionsPercent of Quota
Quota2,042.90100.00
IMF holdings of currency (holdings rate)1,731.1084.74
Reserve tranche position311.8315.26
Lending to the Fund New Arrangements to Borrow35.82

SDR Department

SDR MillionsPercent of Allocation
Net cumulative allocation837.96100.00
Holdings849.35101.36

Outstanding Purchases and Loans: None

Latest Financial Arrangements:

TypeApproval DateExpiration DateAmount Approved (SDR millions)Amount Drawn (SDR millions)
Stand-by04/01/9812/31/001,020.79783.23
EFF06/24/9403/31/98791.20791.20
Stand-by02/20/9103/31/93334.20334.20

Projected Payments to Fund: None

Exchange Arrangement

The de jure exchange rate arrangement is classified as free floating, while the de facto exchange rate arrangement is classified as floating. The value of the Philippine peso is determined in the interbank foreign exchange market; the Bangko Sentral ng Pilipinas (BSP) intervenes in the spot and forward markets to smooth undue short-term volatility in the exchange rate. The Philippines maintains an exchange system that is free of multiple currency practices and restrictions on the making of payments and transfers for current international transactions except for exchange restrictions maintained for security reasons and notified to the Fund pursuant to Executive Board Decision 144-(52/51).

Article IV Consultation

Philippines is on the standard 12˗month cycle. The Executive Board Meeting for the 2017 Article IV consultation was held on October 26, 2017 (IMF Country Report No. 17/334).

Financial Sector Assessment Program (FSAP) and Report on Standards and Codes (ROSC) Participation:

MCM: A FSAP was conducted during the fourth quarter of 2001; FSAP missions visited Manila in October and November–December 2001. The final version of the report was discussed with the authorities in June 2002. The associated FSSA was discussed by the Executive Board together with the Article IV staff report in September 2002. The FSAP report was published in March 2004. The FSAP update mission took place in November 2009, and the report was published in April 2010.

FAD: Discussions on fiscal transparency were held in Manila in September 2001. The ROSC report was discussed by the Executive Board in September 2002 together with the Article IV staff report, and published in October 2002. The update to the ROSC report was published in June 2004. In addition, a pilot Fiscal Transparency Evaluation mission took place in February 2014 and the report was published in June 2015 (IMF Country Report No. 15/156).

STA: A ROSC Data Module mission was conducted in September 2003, and the report was published in August 2004.

Capacity Development

The Philippines is an intensive user of IMF capacity development (CD) assistance, particularly in fiscal and monetary and financial areas. The authorities have shown strong ownership and absorbed Fund CD well. They have made great strides in modernizing their legal, regulatory, and operational frameworks, as demonstrated by, among others, the ongoing tax reform, a strengthened supervision framework, and the introduction of an interest rate corridor (IRC) system. The Fund has responded to the authorities’ efforts favorably and provided considerable assistance, making the Philippines one of the largest recipients of Fund CD resources among emerging markets.

FAD has concluded a five-year TA project financed by the Millennium Challenge Corporation to improve the basic functions of tax administration by the Bureau of Internal Revenue (BIR) (2011–16), in line with recommendations made by FAD TA missions in 2005, 2008, and 2009. The project provided for a resident tax administration advisor and an extensive program of short-term expert visits. In the extended project (2013–16), the main priorities were to “institutionalize” the new procedures implemented in the arrears management and VAT audit pilots, enhance the compliance improvement strategy (CIS), integrate redesigned business process with eTIS, and introduce further institutional, governance and management improvements to help ensure sustainability of the reforms. Progress has been made in VAT audit, arrears management and compliance improvement strategy. In addition, TADAT assessment took place in December 2015 to provide a picture of the current state of operations within the BIR against international good practice in tax administration. A tax policy TA in April 2016 made a comprehensive proposal of tax reform in the ASEAN environment. FAD’s past TA missions on tax policy provided advice that constituted the basis for the reform of excises on tobacco and alcoholic beverages implemented in early 2013 and publication of tax expenditures to improve transparency and accountability of tax incentives supported by the Tax Investment and Management Act (TIMTA). TA on public financial management (PFM) has sought to establish effective and efficient budget and treasury management. In addition to the Fiscal Transparency Evaluation, TA on medium-term budget framework, government cash management, formulation and drafting of the PFM bill, and contingent liabilities management took place in 2014–2016. In line with past PFM advice, the government introduced a Treasury Single Account and is reviewing its cash management and planning. It now produces a midyear report on the macroeconomic and fiscal outlook and midyear budget execution. In addition, the revenue and expenditure from off budget accounts are now presented in budget documents. Moreover, the PFM bill has been submitted to the Congress. A TA mission in August 2017 reviewed ongoing reforms and recommended next steps for strengthening the treasury single account (TSA) system and government cash management.

On the legal area, LEG provided TA to the Philippines on Central Banking Legislation in 2012 and provided advice on the amendment to the Philippines’ Central Banking Law in November 2013. In April 2013, LEG also provided TA on Implementation of Targeted Financial Sanctions Obligations under UN Security Council Resolutions Relation to Terrorism Financing.

MCM provided a series of TA in 2010–15 on developing and implementing a risk-based supervisory approach to keep with the Basel Core Principles and other key international supervisory practices and on timely identification and resolution of problem institutions. Among the long list of achievements are: improved quality and timeliness of supervisory actions and related supervisory reports; issuance of new regulations covering securities investments and stress testing; and selected areas of Basel III implementation including liquidity coverage ratio and leverage ratios. MCM TA efforts were also devoted to the implementation of the supervisory core training initiative. The in-house training initiative is now self-sustaining, with 21 courses rolled out, and the quality of the supervisory reports has shown considerable improvement. Finally, two missions in 2015 and 2016 assessed the institutional needs for strengthening the framework for financial stability analysis and provided a road map for a comprehensive financial stability framework, focusing on the institutional setup, monitoring and tools, and crisis management.

In addition, three MCM TA missions on liquidity management and forecasting and on the implementation of an interest rate corridor took place 2013–2015 to strengthen monetary policy operational framework. The BSP has made progress on developing its liquidity forecast capacity, and the new interest rate corridor system was introduced in June 2016.

Other areas of MCM TA included advice on financial market development. A workshop on the deepening of government securities market was held in 2014, and TA on exchange consolidation and securities regulation was delivered in 2015. An MCM TA mission in April 2017 provided recommendations on the appropriate sequencing of fixed income and derivative market reforms, building on the previous TAs on government securities markets and monetary operations. An MCM TA mission on capital account liberalization and foreign exchange market development took place during September-October 2017, which provided recommendations on reforms to facilitate the safe liberalization of capital flows, decrease market segmentation and promote market development.

A series of STA TA missions on Government Finance Statistics took place in 2012 and 2013 to assist the authorities in compiling and disseminating government finance statistics in accordance with Government Finance Statistics Manual 2001. Additionally, during 2012 STA provided TA to the Philippines in the areas of Balance of Payments Statistics, Data Dissemination Standards, National Accounts, and producer and consumer price indices. In late 2014, a TA mission worked with the Philippine Statistics Authority (PSA) on source data and compilation procedures of quarterly accounts, and the implementation of the new System of National Accounts 2008 (2008 SNA). A TA mission took place in August 2017 to enhance PSA capacity and improve the GDP and sectoral accounts. STA also organized a workshop in July 2017 to train the authorities on the compilation of chained indexes for producer and consumer prices.

Two MFS missions were fielded in August 2014 and September 2015 to advance the work on the introduction of the standardized report form (SRF) for other financial corporations (OFCs). The authorities have submitted test SRF-data for several types of OFCs, which have been reviewed by STA. It is expected that the SRF will be introduced by end-2016.

Resident Representative

A Resident Representative has been stationed in Manila since January 1984. Mr. Yongzheng Yang has been the Resident Representative for the Philippines since September 2017.

Relations with other International Financial Institutions

Statistical Issues

(As of August 20, 2018)

I. Assessment of Data Adequacy for Surveillance
General: Data provision to the Fund has some shortcomings but is broadly adequate for surveillance.
National accounts: As part of a World Bank-funded project, Improving the Quality and Usefulness of the Philippine System of National Accounts, the National Statistical Coordination Board (NSCB) rebased the national accounts from 1985 to 2000. Continuing efforts are underway to rebase the national accounts from 2000 to 2012 and fully implement the System of National Accounts, 2008. This is expected to be released in the near future. The authorities have made strides to improve the quality of the data. Work is underway to improve (i) the accuracy of the GDP volume measures; (ii) the coverage of the public corporations sector; (iii) the accuracy of the quarterly GDP data; and (iv) the adoption of benchmark techniques to reconcile quarterly and annual national accounts estimates. The NSCB is currently participating in the IMF Statistics Department’s Project on the Implementation of the System of National Accounts and the International Comparison Program, funded by the Government of Japan. This three-year technical assistance project provides assistance to improve the quality of the national accounts and price statistics.

Price statistics: In March 2018, the National Statistics Office introduced a rebased consumer price index (CPI). The updated CPI is compiled using weights based on the 2012 Family Income and Expenditure Survey. Data from the 2013 Commodity and Outlet Survey were used to augment the provincial market baskets. One important methodological change implemented in the updated CPI is the use of the “chained” method. This method allows for timely addition of new items to the basket and the exclusion of any obsolete commodities. The CPI data is classified according to the internationally recommended Classification of Individual Consumption by Purpose (COICOP) for the classification of all items.
External sector statistics: The BSP completed the BOP compilation based on the BPM6 framework in March 2014, and that of the IIP in September 2014. Steps have been taken to improve the quality of balance of payment statistics. In 2005, the Central Bank of Philippines (BSP) created a Department of Economic Statistics, with one of its units to concentrate on compiling, analyzing, and publishing the balance of payments and the international investment position. Since deregulation in the early 1990s, international transactions have increasingly flowed through nontraditional channels that are not adequately covered by the statistical reporting system. The authorities have introduced new data sources, including the Cross-Border Transactions Survey and administrative-based reporting systems to address coverage issues, but challenges remain. The Foreign Currency Deposit Units (FCDUs), which account for about 70–75 percent of foreign exchange settlements, are exempt from reporting requirements because of strict banking secrecy rules.
Monetary and financial statistics: The authorities report monthly monetary statistics for the central bank with a lag of more than one-month and other depository corporations with a lag of more than two months, using the standardized report forms for publication in the International Financial Statistics. The authorities are in the process of improving the timeliness of monthly statistics for the central bank, the most recent data was submitted with a one-month lag. A joint effort between the Insurance Commission, SEC, GOCs, BSP to gather data and publish the Other Financial Corporations (OFCs) Survey is ongoing. A monetary and financial statistics mission is planned for FY19 to advance work on OFCs data.
Financial Soundness Indicators: The authorities report all 12 core financial soundness indicators (FSIs), 9 of the 13 encouraged FSIs for deposit takers, and 2 FSIs for real estate markets—on a quarterly basis—for posting on the IMF’s FSI website with one quarter lag.
Government finance statistics: Provision of fiscal data is broadly adequate for surveillance. Philippines report data for the budgetary central government in the GFSM 2014 format. Major areas for improvement include expanding the sector coverage beyond the budgetary central government and reporting of financial balance sheet.
II. Data Standards and Quality
Philippines subscribed to the Special Data Dissemination Standards (SDDS) in August 1996.A data ROSC was published in August 2004.
Philippines: Table of Common Indicators Required for Surveillance(As of August 14, 2018)
Date of Latest ObservationDate ReceivedFrequency of Data7Frequency of Reporting7Frequency of Publication7Memo Items:
Data Quality—Methodological Soundness8Data Quality—Accuracy and Reliability9
Exchange rates8/14/20188/14/2018DDDOO
International reserve assets and reserve liabilities of the monetary authorities17/20188/2018MMMLOLO
Reserve/base money6/8/20187/2/2018DWWO, LO, LO, LNOLO, O, O, O, LO
Broad money6/20188/2018MMM
Central bank balance sheet7/20188/2018MMM
Consolidated balance sheet of the banking system26/20188/2018MMM
Interest rates38/14/20188/14/2018DDDOO
Consumer price index7/20188/2018MMMO, O, O, OO, LO, O, LO, LO
Revenue, expenditure, balance and composition of financing4—general government46/20188/2018QQQLO, LO, O, OLO, LO, LO, LO, LO
Revenue, expenditure, balance and composition of financing4—central government6/20188/2018MMM
Stocks of central government and central government-guaranteed debt56/20188/2018MMMLNOLNO
External current account balance3/20186/2018MMMO, LO, LO, LOLNO, LO, O, LO, LO
Exports and imports of goods and services3/20186/2018MMM
GDP/GNPQ2:20188/2018QQQLO, LO, O, LOLNO, LNO, O, LO, O
Gross external debtQ1:20186/2018QQQOO
International investment position6Q1:20186/2018QQQOO

Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but sett other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Foreign, domestic banks, and domestic nonbank financing.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC or the Substantive Update (published on August 25, 2004 and based on the findings of the mission that took place during September 1–16, 2003) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, sc classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning source data, statistical techniques, assessment and validation of source data, assessment and validation intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but sett other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Foreign, domestic banks, and domestic nonbank financing.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC or the Substantive Update (published on August 25, 2004 and based on the findings of the mission that took place during September 1–16, 2003) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, sc classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning source data, statistical techniques, assessment and validation of source data, assessment and validation intermediate data and statistical outputs, and revision studies.

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