THE International Monetary Fund (IMF) has called on the Philippine government to pursue gradual fiscal consolidation over the medium term, saying this would strengthen the country’s financial situation.
The fiscal deficit is expected to narrow to 3.1 percent of gross domestic product (GDP) by 2030, the IMF said in its recent 2025 Article IV Consultation report, with 0.5- to 0.6-percentage point declines beginning 2027.
While the pace of consolidation is broadly unchanged from last year’s fiscal program, the IMF noted that next year’s higher deficit target means the 2028 shortfall would be 4.3 percent of GDP, wider than the previously-planned 3.7 percent.
“With no new tax policy measures, staff’s baseline projections for 2027–28 assume the consolidation will be achieved largely through lower spending,” the IMF said.
“Staff projects national government debt to decline gradually to about 60 percent of GDP by 2030, supported by a favorable interest rate-growth differential,” it added.
Based on its Sovereign Risk and Debt Sustainability Framework, the IMF said the Philippines was facing a “low risk of sovereign stress.”
It said the Medium-Term Fiscal Framework (MTFF), including a plan to eliminate the primary deficit by 2030, was broadly appropriate. It is expected to help ensure that debt remains sustainable, rebuild fiscal buffers, reduce government financing needs and limit the risk of crowding out private investment while also helping improve the external balance.
However, the IMF said the MTFF could be strengthened further by clearly linking targets to specific tax and spending measures.
While the plan clarifies the government’s goals of bringing the debt-to-GDP ratio below 60 percent and reducing the fiscal deficit to 3.1 percent by 2030, the IMF said backing these targets with concrete policy actions would improve transparency and boost confidence.
“The authorities can also consider embedding their fiscal targets within a formal and well-designed fiscal rule to enhance their credibility, while minimizing procyclical fiscal policies,” it said.
Stronger tax mobilization should also play a central role in fiscal consolidation to make it more sustainable and supportive of growth. With significant room to raise tax revenues, the IMF noted that revenue-based measures generally have a smaller negative impact on economic activity than spending cuts.
And while tax administration reforms remain a priority, the IMF noted that such could take time and their gains uncertain. “There are important benefits to complementing them with tax policy measures,” it said.
Options cited include improving value-added tax efficiency, raising excise taxes on products with health risks such as sugary drinks and nutritionally poor packaged foods and reducing value-added exemptions on housing ownership.
The importance of closely monitoring the cost of tax incentives and assessing their benefits with support from the IMF, especially following the recent expansion of incentives under the Create More Act, was also stressed.
The IMF advised against pursuing a general tax amnesty, warning that repeated amnesties can weaken voluntary tax compliance over time. Voluntary disclosure programs were proposed as a better alternative.
A broad and sustained relaxation of bank deposit secrecy laws, meanwhile, could help address compliance risks provided that this is paired with faster tax administration reforms and safeguards to manage money laundering and governance risks.