An International Monetary Fund (IMF) mission underscored the need for new tax measures to bolster revenue collection and government spending in the Philippines.
“Fiscal consolidation is progressing in 2024, albeit at a slower pace than initially projected,” the IMF mission said in its report.
“Higher-than-anticipated interest payments and higher capital spending are being partly financed by a one-off increase in non-tax revenues. The 2025 budget adopts a broadly neutral fiscal stance that will help mitigate downside risks to growth, but additional tax policy measures should be considered to create more space for spending in priority areas,” it said.
The IMF mission said the medium-term fiscal consolidation remains appropriate and should be supported by a sustainable plan to raise tax revenues and implement expenditure reforms in order to protect social spending and ensure deficit targets are met.
It said tax reforms could prioritize excise taxation, enhancing VAT efficiency, improving tax administration, and ensuring effective control of tax incentives.
The mission recommended introducing a carbon tax and prioritizing excise taxation, improving value-added tax efficiency, enhancing tax administration, and ensuring effective control of tax incentives.
The IMF also advised the government to reduce current spending, manage fiscal risks associated with public-private partnership projects, and strengthen public financial management at both national and local levels.
Despite facing multiple external headwinds in recent years, the Philippine economy is expected to rebound, with growth projected to reach 6.1 percent in 2025. The IMF attributed this growth to more accommodative financial conditions and increased investment.
The mission noted that systemic risks within the financial system remain moderate, with the banking sector characterized by strong capitalization, liquidity, and profitability. However, it cautioned against potential vulnerabilities in the real estate sector and a rapidly growing consumer credit market.
The IMF also encouraged the Philippines to continue its efforts to address anti-money laundering and combating the financing of terrorism issues, aiming to achieve prompt removal from the Financial Action Task Force’s gray list.
The mission highlighted the Philippines’ significant growth potential, driven by its abundant natural resources, untapped blue economy, and sizable demographic dividend.
To unlock this potential, the IMF recommended comprehensive structural reforms, including upgrading infrastructure, investing in healthcare and education, addressing land fragmentation in agriculture, and enhancing governance.
Digitalization, the mission said, offers an opportunity to improve access to quality education, promote financial inclusion, and enhance public spending efficiency.
