IMF pushes consolidation, flags key tax reforms

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December 26, 2025 | 12:00am

To rebuild Philippines fiscal space

MANILA, Philippines — The International Monetary Fund (IMF) has urged Philippine authorities to pursue gradual fiscal consolidation over the medium term to rebuild fiscal space, support external balance and ensure debt sustainability.

The multilateral lender also flagged the need to underpin the country’s fiscal targets with concrete tax and expenditure measures.

In its staff report for the 2025 Article IV Consultation, the IMF said “the authorities should implement gradual fiscal consolidation, in line with their targets, to reinforce fiscal space and support external balance.”

Under the government’s medium-term fiscal framework or MTFF, the IMF noted that the fiscal deficit is projected to decline to 3.1 percent of gross domestic product by 2030. This would require an annual reduction of about 0.5 to 0.6 percentage point of GDP in the overall deficit from 2027 to 2030.

“With no new tax policy measures, staff’s baseline projections for 2027 to 2028 assume the consolidation will be achieved largely through lower spending,” the IMF said.

Despite this, the Fund expects the country’s debt position to improve. “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 said.

The IMF said the medium-term consolidation path, including the elimination of the primary deficit by 2030, is “broadly appropriate,” as it would help ensure debt sustainability even under weaker growth, raise fiscal space in a shock-prone economy, reduce gross financing needs and crowding out of private investment and strengthen the country’s external position.

However, the Fund stressed that the MTFF “could be further enhanced, including by embedding it with concrete tax and expenditure measures,” noting that this would improve transparency and confidence in fiscal targets.

It also said authorities could consider embedding fiscal targets “within a formal and well-designed fiscal rule to enhance their credibility, while minimizing procyclical fiscal policies.”

Tax mobilization, the IMF said, should underpin fiscal consolidation to make it more sustainable and growth-friendly. “The Philippines has significant potential to raise tax revenues,” the report said, adding that revenue-based measures “typically have lower multipliers than spending measures.”

While tax administration reforms remain a priority, particularly in compliance risk management and data analytics, the IMF said these should be complemented by tax policy measures as administrative gains may take time to implement.

The Fund cited several tax policy options, including improving value-added tax efficiency and introducing measures with health benefits such as raising excise taxes on sugared beverages and pre-packaged foods lacking nutritional value as well as reforms that improve progressivity of the tax system including lowering VAT exemptions on dwelling ownership.

It also emphasized the need to continuously monitor and evaluate tax incentives, especially following the enhancement of incentives under the CREATE MORE Act.

The IMF warned that a general tax amnesty under consideration “is not advisable as anticipated GTAs lower regular voluntary compliance,” adding that voluntary disclosure programs should be preferred.

On spending, the IMF highlighted the need to improve the capacity of local government units to budget, execute and report spending, particularly at the barangay level, to support effective devolution.

It also said reforming military and uniformed personnel pensions by introducing a contributory system and removing indexation to current salaries can help control spending on compensation of employees.

The IMF likewise called for continued efforts to strengthen public financial management and fiscal risk oversight. While improvements since 2018 were noted, the Fund said stronger implementation of investment planning, appraisal, selection and procurement remains critical to improve spending efficiency and reduce corruption vulnerabilities.

The rationalization of unprogrammed appropriations was described as welcome, while further efforts to strengthen budget credibility and fiscal discipline were encouraged.

The IMF also said that authorities should prioritize enhancing fiscal risk analysis, monitoring contingent liabilities, especially those related to local government units and improving local investment planning.