IMF flags gaps in DOF’s forecasting model

March 30, 2025 | 12:00am

“The mission identified a need for substantial human capital development in macroeconomics and modeling within the DOF. The technical staff, while diverse in academic background, lacks formal training in advanced macroeconomic theory and modeling techniques.”

MANILA, Philippines — The International Monetary Fund (IMF) has recommended a major overhaul of the Department of Finance (DOF)’s macroeconomic forecasting system, citing the need for a more comprehensive and customizable framework to support fiscal policy analysis.

In a high-level summary technical assistance report, the multilateral lender said that the IMF’s Institute for Capacity Development conducted a scoping mission in late January 2023, initiated at the request of the DOF to enhance its macroeconomic analytical and forecasting capabilities.

The mission revealed that while the DOF utilizes the IMF’s Globally Integrated Monetary and Fiscal model, its staff lacks the necessary training to recalibrate or modify the tool. This limits its ability to provide consistent and adaptive economic forecasting.

“The mission identified a need for substantial human capital development in macroeconomics and modeling within the DOF. The technical staff, while diverse in academic background, lacks formal training in advanced macroeconomic theory and modeling techniques,” the IMF said.

“The mission emphasized the importance of building sustainable capacity through systematic training and the development of a flexible macroeconomic framework,” it said.

To address this gap, the IMF recommended the development of a simpler, more flexible macroeconomic framework based on the Comprehensive Adaptive Expectations Model.

The CAEM will allow DOF economists to conduct a wider range of policy analyses while ensuring that the framework remains relevant to the evolving Philippine economic landscape.

Alongside the new model, the IMF said there is a need for capacity building within the DOF.

The mission proposed a structured training program for technical staff to improve their proficiency in macroeconomic modeling and forecasting techniques.

A core team within the DOF will spearhead the adoption of the CAEM with support from IMF experts. The initiative will follow a hybrid approach, combining in-person and virtual engagements to ensure effective knowledge transfer.

The IMF’s recommendations come at a critical time, as the Philippine economy navigates post-pandemic uncertainties, fiscal consolidation efforts and global economic shifts.

The Philippine economy grew by 5.6 percent in 2024, faster than the 5.5-percent expansion in 2023, but below the government’s growth target as extreme weather disturbances, geopolitical tensions and weak global demand dampened economic activity in the last quarter of the year.

However, last year’s full-year gross domestic product growth fell short of the Marcos administration’s revised six to 6.5-percent growth target. The government previously set a six to seven-percent growth target for 2024.

In the fourth quarter, the economy expanded by 5.2 percent, unchanged from the previous quarter, but slower than the 5.5-percent expansion in the fourth quarter in 2023.

By strengthening its forecasting capabilities, the DOF is expected to enhance fiscal planning, improve policy decisions and contribute to long-term economic stability.

The high-level summary technical assistance report series provides high-level summaries of the assistance provided to IMF capacity development recipients, describing the high-level objectives, findings and recommendations.