The privatization of the power sector is essential to restore its financial viability that would facilitate the investments needed to ensure adequate power supply.
In its recent report, the IMF has urged government to finalize the agreements holding up the privatization of the generation assets.
It has underscored that the privatization process should be embedded in a sound regulatory framework.
The IMF also viewed the significant increases in generation tariffs awarded to NPC as an important contribution to the fiscal consolidation effort of the government.
The government has been encouraged to protect these gains by adjusting tariffs in the future in a timely manner.
It has the support of the IMF for developing medium-term deficit targets for government-owned and controlled corporations, as this would be essential to support fiscal consolidation.
The report noted that civil service and pension reforms are critical for achieving sustainable fiscal consolidation.
The IMF also welcomed the efforts being made by the government to reform the civil service and offer an affordable severance package.
It also looking forward to the results of the actuarial review of the social security system that would pave the way for placing public pensions on a sustainable footing.
While noting that a series of supply shocks have been the root cause of the rise in inflation, the IMF was concerned that interest rate differentials were narrowing at a time when the Philippines’ risk premium may have risen due to political uncertainties, which could lead to a weakening of the exchange rate and further additional inflationary pressure.
The IMF was also concerned that the persistence of above-target inflation for a prolonged period — even when caused by temporary factors — might lead to an upward and permanent revision of inflationary expectations, especially if the effects of higher oil prices, a weaker exchange rate, and the planned VAT increases are taken into account.
Notwithstanding the recent increase in reserve requirements, the IMF has considered that a case still does exist for tightening monetary policy to guide inflation expectations down.
IMF has welcomed the authorities’ readiness to monitor developments closely. It has noted the progress in banking sector reform, including the continued decline in non-performing loan ratios.
It was encouraged that banks have begun to use the special purpose vehicle (SPV) framework set up to facilitate the sale of non-performing assets.
The government got the support of the plan to extend the SPV framework, and encouraged them to closely monitor developments in the trust and pre-need sectors.
The privatization of the Philippine National Bank was a welcome move and the recent acquisition announcements that would pave the way for necessary banking consolidation.
However, the IMF has expressed concern that the amendments to the central bank’s charter, which are critical to strengthening bank supervision, are still pending in Congress, and stressed the need for early approval.
It is expecting that the Philippines would adopt the International Financial Reporting Standards by the end of the year, which should lead to much needed improvements in transparency of banking sector indicators.
The continued progress made by the authorities in strengthening the antimoney laundering and combating the financing of terrorism regime was also noted.
