IMF urges Philippines to prepare buffers vs economic risks

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January 3, 2026 | 12:00am

MANILA, Philippines —  The International Monetary Fund (IMF) warned of heightened downside risks to the Philippine economy and urged authorities to prepare policy responses to potential adverse shocks, citing growing global uncertainty in its 2025 Article IV Consultation staff report.

The IMF said an illustrative downside scenario layers multiple external shocks, including higher tariffs and supply-chain disruptions, higher inflation expectations, higher global sovereign yields, tighter global financial conditions and lower global demand for US assets.

Using its Quarterly Projection Model, the IMF found that the combined shocks would have a significant impact on the economy. At its peak, the output gap would be “reduced by 1.5 percent relative to the baseline, driven by tighter financial conditions and weaker exports.”

Higher sovereign and corporate yields will weigh on public finances and private investment, while corporates in trade-oriented sectors will be hit and the banking system can face higher nonperforming loans.

The report noted that the first two layers of the scenario, in isolation, “may reduce room for easing monetary policy given their persistent nature and impact on inflation expectations amid a growth slowdown.”

However, with all shocks combined, the downside scenario is expected to have “a small negative impact on inflation and a modest reduction in the policy rate,” the IMF said.

Given the sizeable output gap, the IMF said there is scope for monetary policy to be more accommodative than what the scenario alone suggests.

Philippine authorities broadly agreed with the IMF’s assessment.

They “concurred with the overall implications of the downside scenario” and “broadly agreed with the qualitative and quantitative aspects,” while emphasizing the importance of global policy responses in assessing the impact on the Philippines.

They also acknowledged making “increasing use of scenario analyses in their policy deliberations and public communications.”

Beyond near-term risks, the IMF underscored the need for structural reforms to lift potential growth and resilience.

“Investment and productivity-enhancing reforms are needed to accelerate inclusive growth, diversify the economy and boost resilience,” it said, noting that several

legislative reforms to improve the business environment and boost digitalization have been ratified, with effective implementation seen as critical.

The IMF highlighted governance reforms as essential, stating that “enhancing fiscal governance and rule of law and reducing corruption vulnerabilities are critical for inclusive and sustainable growth.”

Priorities include strengthening public financial management through better data quality, improved capital project appraisal and monitoring, greater transparency of procurement data supported by digitalization and independent ex-post audits, particularly for investment projects. The IMF welcomed the Ombudsman’s steps to restore public access to asset declarations of public officials.

Human capital development was another focus, with the report noting that investing in education and adaptive social protection would help address skills shortages, particularly amid digitalization and increasing exposure to extreme weather events. This is especially important given the advent of artificial intelligence, which “poses risks to employment, especially in the business process outsourcing sector,” while also offering “significant potential for AI complementarity.”