IMF worried about risks of PH real estate glut, spike in Filipinos’ consumer loans

The International Monetary Fund (IMF) has urged the Philippines to gradually ease its monetary policy as inflation moderates and growth stabilizes — recommendations expressed in its latest consultation with the government’s economic managers.

In a statement released on Friday, Dec. 20, 2024, the IMF’s Executive Board commended the Philippine government for navigating external challenges, but flagged vulnerabilities in the real estate sector and risks to the broader economy.

The Philippine economy is expected to grow 5.8 percent in 2024, driven by easing inflation and declining borrowing costs, before accelerating to 6.1 percent in 2025. Inflation is forecast to average 3.2 percent in 2024, aided by reduced rice tariffs and measures to curb food prices. 

However, downside risks such as global commodity price volatility, geopolitical tensions, and climate-related disruptions remain prominent.

Key IMF recommendations

• Policy easing: The IMF recommended that the Bangko Sentral ng Pilipinas (BSP) continue reducing the policy rate gradually as inflation expectations align with targets. A data-driven approach and transparent communication will be crucial in managing market expectations amid uncertainties.
  
  
• Fiscal strategy: The Fund supported the revised fiscal program’s gradual consolidation, suggesting further tax reforms and improved expenditure efficiency to create space for priority investments. Efforts to reform the military pension system and enhance tax administration were emphasized.
  
  
• Exchange rate flexibility: Allowing the exchange rate to absorb external shocks while maintaining a credible yield curve will strengthen monetary policy transmission and improve the fixed-income market.
  
  
• Structural reforms: Comprehensive reforms in healthcare, education, infrastructure, and governance are vital for unlocking medium-term growth potential. The IMF highlighted the importance of digitalization in improving financial inclusion and public spending efficiency.

Concerns in the real estate sector

While the financial system remains broadly resilient, the IMF identified vulnerabilities in the commercial real estate market, marked by high vacancy rates and declining rents.

Non-performing loans in the housing sector and rapid growth in consumer loans also require close monitoring.

The BSP was advised to strengthen its macroprudential toolkit, particularly by adjusting the countercyclical capital buffer and enhancing its capacity to manage financial stability risks.

The IMF also noted progress in addressing anti-money laundering and terrorism financing issues. Reforms such as updating the bank secrecy law will further enhance financial integrity and supervisory powers.

With strong fundamentals, the Philippines is well-positioned for sustained growth, but timely implementation of reforms is critical to mitigate risks and achieve inclusive, resilient economic development, the multilateral agency said.