IMF: Philippines must sustain fiscal consolidation

The Philippines should sustain its gradual fiscal consolidation to strengthen its fiscal space and external balance, and ultimately lower its debt-to-gross domestic product (GDP) ratio to its target, the International Monetary Fund (IMF) said. 

“Over the medium term, the authorities should implement gradual fiscal consolidation, in line with their targets, to reinforce fiscal space and support external balance,” the IMF said in a report on its Article IV Consultation with the Philippines. 

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

The Legislative-Executive Development Advisory Council (LEDAC) included the excise tax on single-use plastics and the extension of the general tax amnesty in its list of 44 priority bills for the 20th Congress. 

Both measures are pending in both chambers. The House of Representatives having nine pending bills proposing an excise tax on single‑use plastics, while the Senate has four similar measures. 

Earlier, Finance Undersecretary Karlo Fermin S. Adriano said that the proposal is primarily not a tax bill but an environmental measure to curb the use of plastics. 

Mr. Adriano has said at a PHP 100-per-kilogram excise tax, the resulting revenue will be PHP 8 billion. 

However, the IMF frowned upon the administration’s proposed general tax amnesty, saying that it could lessen regular voluntary tax compliance. 

“Implementing voluntary disclosure programs should be preferred,” it said. 

Earlier this month, House approved on third and final reading the bill to extend the coverage of the estate tax amnesty to the estates of individuals who died on or before Dec. 31, 2028. 

The IMF also urged the Philippine government to adopt “concrete and durable” tax and spending measures to prevent potential cuts on its primary expenditures. 

“Underpinning MTFF (medium-term fiscal framework) targets with concrete tax and expenditure measures would further improve transparency and confidence in the fiscal targets,” the IMF said. 

“The authorities can also consider embedding their fiscal targets within a formal and well-designed fiscal rule to enhance their credibility, while minimizing pro-cyclical fiscal policies,” it added.

The IMF also said the government should prioritize reforms in its tax administration, particularly by improving compliance risk management and leveraging data analytics. 

The Philippines could likewise work on improving the efficiency of its value added tax (VAT), including reducing VAT exemptions on dwelling ownership, or introduce excise taxes on unhealthy food and beverages, it added. 

However, the government earlier said it does not plan to introduce new taxes on top of the LEDAC’s proposed measures as part of the administration’s fiscal consolidation efforts. 

“They do not plan to implement additional tax policy measures, but efforts to digitalize tax administration and stricter enforcement of tax compliance should continue to support revenue mobilization,” the IMF added. 

Meanwhile, the IMF noted that a favorable interest rate-growth differential will allow the country bring down the debt-to-GDP ratio. 

“Staff projects national government debt to decline gradually to about 60% of GDP by 2030, supported by a favorable interest rate-growth differential,” it said. 

As of end-September, the National Government (NG) debt as a share of GDP climbed to 63.1% from 60.1% in the same period last year. This exceeds the 60% threshold deemed sustainable for developing countries. 

The Department of Finance projects the NG debt-to-GDP ratio to settle at 61.3% by yearend, before eventually easing to 58% by 2030. — KKC