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The national government’s (NG) budget deficit ballooned in March as revenues slipped and state spending jumped ahead of the election ban, the Bureau of the Treasury (BTr) said.

Data from the BTr showed the fiscal gap widened by 91.78% to PHP 375.7 billion in March from PHP 195.9 billion in the same month a year ago.

Government spending surged by 35.37% to PHP 655 billion in March from PHP 483.8 billion a year prior.

Primary spending — which refers to total expenditures minus interest payments — soared by 37.29% to PHP 566.9 billion from PHP 412.9 billion.

Interest payments jumped by 24.21% to PHP 88.1 billion from PHP 70.9 billion in the previous year.

In March, revenue collection fell by 3.01% year on year to PHP 279.3 billion, as nontax revenues plunged by 69.36% to PHP 19.6 billion.

Broken down, income from the BTr slumped by 83.32% to PHP 8.7 billion while revenues from other offices declined by 26.9% to PHP 10.9 billion.

Tax revenues, on the other hand, rose by 15.97% to PHP 259.6 billion in March from PHP 223.9 billion a year ago.

Bureau of Internal Revenue (BIR) collections jumped by 20.86% to PHP 175.7 billion, while Bureau of Customs’ (BoC) revenues went up by 7.3% to PHP 80.4 billion.

“The sharp widening of the budget deficit in March and the first quarter was driven primarily by stronger government spending, particularly on infrastructure and social programs, alongside a moderation in revenue growth,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said.

“Disbursements likely ramped up ahead of the election-related spending ban, while revenues, although growing, may have faced headwinds from slower-than-expected collections in certain tax components,” he added.

The 45-day election ban on the release of public funds for public works projects began on March 28. This is done to prevent incumbent officials from using these funds during the election period for their advantage.

First quarter

The budget deficit in the January-March period widened to PHP 478.8 billion, higher by 75.62% from the PHP 272.6-billion gap in the same period in 2024.

However, the Treasury said this was still in line with its PHP 1.5-trillion full-year deficit program.

Expenditures jumped by 22.43% to PHP 1.477 trillion as of end-March from PHP 1.21 trillion in the same period a year ago.

The Treasury said government spending in the first quarter already accounted for 23.89% of the PHP 6.2-trillion full-year disbursement program.

Primary spending increased by 21.96% to PHP 1.24 trillion and interest payments jumped by 24.88% to PHP 241 billion.

“The strong spending performance can be attributed to the higher disbursements recorded in the Department of Public Works and Highways (DPWH) for its road infrastructure program and regular operating requirements, and in the Department of Social Welfare and Development (DSWD) for its various protective services programs.”

It also cited National Tax Allotment (NTA) transfer shares, annual block grant to the Bangsamoro Autonomous Region and releases for the local government support fund.

“Likewise, the transfer of P32.8 billion (inclusive of accrued interest) to the Coconut Farmers and Industry Trust Fund in accordance with the mandated schedule of capitalization contributed to the larger spending outturn,” the BTr said.

Meanwhile, state revenues increased by 6.9% to PHP 998.2 billion in the first quarter from PHP 933.7 billion a year earlier. This year, the government is projecting to collect PHP 4.64 trillion in revenues.

Tax revenues rose by 13.55% to PHP 931.5 billion from PHP 820.4 billion last year.

The BTr said that its overall collections remain on track due to a “strong” performance from the BIR and Customs.

“The revenue agencies’ sustained growth for the third consecutive month was driven by their ongoing revenue enhancement measures, particularly the intensified campaign against the use of fake receipts, intensified crackdown on illicit trade, digitalization, and improvements in tax payment facilitation, among other initiatives,” it said.

BIR revenues climbed by 16.67% to PHP 690.4 billion, due to “higher collections from personal income tax (PIT), corporate income tax (CIT), percentage taxes, value-added tax (VAT), excise taxes, documentary stamp tax, and percentage taxes.”

Customs collections grew by 5.72% to PHP 231.4 billion driven by “higher VAT from non-oil imports and excise tax collections from oil and non-oil imports.”

On the other hand, nontax revenues slumped by 41.21% year on year to PHP 66.7 billion as of end-March.

BTr revenues plunged by 55.3% to PHP 32.3 billion while collections from other offices decreased by 16.5% to PHP 34.3 billion.

“Largely due to timing as 18 government-owned and -controlled corporations (GOCCs) remitted PHP 28.23 billion in early first-quarter dividends back in 2024 compared with only three GOCCs with PHP 0.027 billion early dividends for the current year,” the BTr said.

“Nevertheless, nontax revenues are expected to improve in the succeeding months, with dividends from the GOCCs set to be remitted to the National Treasury starting May 2025.”

The BTr said that the NG is still on track to keeping to its deficit targets for the year.

“With dividend remittances and other nontax receipts expected to materialize in the succeeding quarters, and as expenditures continue to track the full-year program in a more balanced manner, the 2025 fiscal deficit is projected to remain within the P1.5-trillion target.”

Under the latest Development Budget Coordination Committee (DBCC) figures, the NG capped its deficit ceiling at 5.3% of gross domestic product (GDP) this year.

Mr. Rivera said the NG’s budget gap reflects the need for “balancing fiscal support for development priorities with disciplined revenue mobilization to avoid long-term fiscal strain.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the wider fiscal deficit could also increase the need for additional borrowings to support cash flow.

“Faster growth in government expenditures also reflected increased debt servicing amid the dramatic increase in debt incurred since the COVID-19 (coronavirus disease 2019) pandemic started nearly five years ago,” he said.

On the other hand, Mr. Ricafort said the budget balance could revert to a surplus in April amid the seasonal increase in tax collections as the BIR deadline for filing was on April 15.

Mr. Ricafort said there may be a need for more fiscal reform measures to “reduce government expenses such as rightsizing of the government and tax reform to further increase collections to narrow the budget deficit and curb additional need for borrowings.”

“Additional tax revenue collections based on existing tax laws or through new tax reform measures and even higher tax rates would be needed, especially if inflation becomes more benign and better controlled since higher taxes could add to inflationary pressures,” he added.

The Finance department has said it has no plans to introduce new tax measures anytime soon, instead focusing on improving tax administration and efficiency. – Luisa Maria Jacinta C. Jocson, Senior Reporter

Headline inflation may have settled below the 2-4% target band again in April, the Bangko Sentral ng Pilipinas (BSP) said.

The central bank’s month-ahead forecast showed that inflation likely settled within the 1.3%-to-2.1% range in April.

If realized, April inflation would be much slower than the 3.8% print logged in April 2024.

At the upper end of the BSP forecast, inflation likely accelerated from the near-five-year low of 1.8% in March.

On the other hand, the low end of the forecast showed inflation could have hit its lowest clip in over five years or since 1.2% in November 2019. It would also mark the third straight month of deceleration.

The local statistics agency is set to release April inflation data on May 6 (Tuesday).

“Easing prices of rice, fish, fruits, and vegetables, favorable domestic supply conditions along with lower oil prices and the peso appreciation contributed to the downward price pressures for the month,” the BSP said.

Rice inflation has been on the decline after the government slashed tariffs on rice imports in July last year and following the food security emergency declared on the staple grain this February. In March, rice inflation decelerated to 7.7%.

The peso closed at PHP 55.84 per dollar on April 30, its strongest finish in more than seven months or since its PHP 55.69 finish on Sept. 20, 2024.

It was also the first time the peso hit the PHP 55 level since it closed at PHP 55.965 on Sept. 26, 2024.

Pump price adjustments stood at a net decrease of P0.80 a liter for kerosene in April. However, it stood at a net increase of P0.40 a liter each for gasoline and diesel.

“These could be offset in part by the higher electricity rates and LRT-1 fares,” the central bank added.

Starting April 2, the boarding fare at Light Rail Transit Line 1 (LRT-1) was raised to PHP 16.25 from PHP 13.29, while the distance per kilometer fare was increased to PHP 1.47 from PHP 1.21.

Manila Electric Co. (Meralco) hiked the overall rate by PHP 0.7226 per kilowatt-hour (kWh) to PHP 13.0127 per kWh in April from P12.2901 per kWh in March.

“Going forward, the Monetary Board will continue to take a measured approach in adjusting the monetary policy stance in line with its price stability objectives conducive to balanced and sustainable growth of the economy and employment,” the BSP said.

In April, the BSP resumed its rate-cutting cycle with a 25-basis-point (bp) rate cut. This brought the benchmark to 5.5%.

The Monetary Board had delivered a pause at its first policy review of the year in February as it waited to see how global trade policies would unfold.

BSP Governor Eli M. Remolona, Jr. has said there is room for further easing this year, but this will likely be delivered in “baby steps.”

The central bank earlier said risks to the inflation outlook have also eased and remained “broadly balanced” until 2027.

Accounting for risks, inflation is expected to average 2.3% in 2025, 3.3% in 2026, and 3.2% in 2027.

For the first quarter, inflation averaged 2.2%. — Luisa Maria Jacinta C. Jocson

Fitch Ratings affirmed the Philippines’ investment grade rating and kept its “stable” outlook amid the country’s strong growth prospects and minimal exposure to trade tensions.

In a rating action commentary on Tuesday, the credit rater said it affirmed the Philippines’ long-term foreign currency issuer default rating at “BBB,” which indicates low default risk and reflects the economy’s adequate capacity to pay debt.

The debt watcher also kept the outlook on the rating at “stable,” which means it is likely to be maintained rather than lowered or upgraded over the next 18-24 months.

“The ‘BBB’ rating and ‘stable’ outlook reflect the Philippines’ strong medium-term growth, which supports a gradual reduction in government debt-to-GDP, and the large size of the economy relative to ‘BBB’ peers,” it said.

However, Fitch said this is “constrained by low GDP (gross domestic product) per head, despite an upward trend. Governance standards are weaker than those of ‘BBB’ peers, though Fitch believes World Bank Governance Indicator (WBGI) scores somewhat overstate this.”

Fitch expects the Philippines’ GDP to grow by 5.6% this year, below the government’s 6-8% target.

It noted Philippine economic growth is being driven by “large public investments in infrastructure, services exports and remittance-funded private consumption.”

“Private demand should be supported by easing inflation and interest rates. However, domestic political uncertainty could affect investment, while global trade tensions will likely drag on growth, in particular indirectly through weaker global demand,” it added.

Real GDP growth is still expected to expand to over 6% in the medium term, Fitch said.

“Our forecast reflects a payoff from investments in infrastructure and a series of structural reforms in recent years to liberalize the economy and foster trade and investment, including through public-private partnerships.”

“Technological change poses risks to the Philippines’ large outsourcing sector, although it is adapting,” it added.

Meanwhile, the credit rater also noted the Philippines is relatively unaffected by global trade uncertainties, citing its lower reciprocal tariffs compared with its neighbors.

“The Philippines is a relatively closed economy, with goods exports of only about 12% of GDP in 2024, mostly electronics and machinery, based on balance of payments statistic. Over 16% of goods exports were to the US.”

The US slapped a 17% reciprocal tariff rate on the Philippines, which was the second lowest in Southeast Asia. However, this higher tariff has been suspended until July.

Fitch said the relatively lower US duties could be an advantage compared with its regional peers.

“The Philippines’ terms of trade could benefit from lower commodity prices or diversion of Chinese exports,” it added.

The debt watcher also cited the country’s “success in taming inflation” and expects further monetary easing this year.

“We expect consumer price inflation to remain around 2% in 2025-2026, at the lower bound of the central bank’s target range,” it said.

“We continue to view the central bank’s inflation-targeting framework and flexible exchange-rate regime as credible,” it added.

BSP Governor Eli M. Remolona, Jr. welcomed Fitch’s reaffirmation of the country’s credit rating and stable outlook.

“The BSP took actions to help keep inflation manageable and promote sustainable economic growth. The BSP will continue to do so,” he said in a statement.

Inflation averaged 2.2% in the first quarter, well within the central bank’s 2-4% target.

“Monetary financing of the fiscal deficit during the pandemic was limited and reversed more quickly than in some peers. The government’s response to the commodity-price shock was measured, for example, in resisting calls for widespread fuel subsidies,” according to Fitch.

Fitch expects a slower fiscal consolidation path, given the “government’s overriding focus on growth and a less permissive domestic political environment.” 

The government is targeting to gradually bring down its deficit-to-GDP from 5.3% this year to 3.7% in 2028.

Fitch sees the country’s general government deficit narrowing to 3.6% next year and its central government deficit hitting 4.6% by 2026.

The general government debt-to-GDP ratio is also seen to remain mostly unchanged at 54% to 55% from 2025 to next year.

“Strong nominal GDP growth and narrowing fiscal deficits contribute to our forecast of a downward path for government debt-to-GDP over the medium term,” it added.

Meanwhile, Fitch also said the Philippines’ current account  deficit will remain “broadly unchanged” from this year to 2026.

“Strong domestic demand, partly related to public infrastructure development, will continue to drive import growth, offset by lower hydrocarbon import prices and growth in remittances and service exports.”

Fitch also cited factors that could individually or collectively lead to a negative rating action, such as the failure to maintain stable debt-to-GDP levels; reduced confidence in medium-term economic growth; and a deterioration in foreign currency reserves.

On the other hand, factors that could support an upgrade are sustained reductions in the government’s debt levels, stronger-than-anticipated economic growth and the strengthening of governance standards, among others.

The BSP said the Fitch investment grade rating “signals low credit risk and affordable access to funding.”

“This enables a country to allocate funds to socially beneficial initiatives and programs,” it added. – Luisa Maria Jacinta C. Jocson, Senior Reporter

Finance Secretary Ralph G. Recto has withdrawn the Department of Finance’s (DoF) proposal to increase capital gains tax, donor’s tax and estate tax, citing higher revenue collections in the first quarter.

At the same time, Mr. Recto in a statement on Tuesday said that the government is not seeking to impose new taxes or revenue measures amid the government’s “robust fiscal position.”

“The government is properly managing its finances, ensuring that public needs are met without burdening the citizenry with new taxes,” he said. “At the same time, the DoF will continue to explore and strengthen nontax revenue sources to meet the revenue targets.”

In a letter to House Ways and Means Committee Chairperson and Albay Rep. Jose Ma. Clemente S. Salceda, Mr. Recto said the DoF is no longer pushing for the proposed amendments to the Capital Markets Efficiency Promotion Act (CMEPA) “which primarily sought to introduce measures that would secure our path to fiscal consolidation.”

“The Department respectfully requests to withdraw consideration thereof in view of the better-than-accepted revenue performance during the first quarter of the year,” he said.

Mr. Salceda’s office provided a copy of the letter to the media.

The DoF had previously urged legislators to replace the CMEPA with the Government Revenues Optimization through Wealth Tax Harmonization (GROWTH) bill.

Under its draft GROWTH bill, the DoF proposed to temporarily increase the rates of capital gains tax on real property, donor’s tax, and estate tax to 10% from 2025 to 2030. These rates will be reduced to 6% starting 2031.

The DoF had estimated this could yield around PHP 300 billion in revenues.

In the letter to Mr. Salceda, Mr. Recto said the proposed tax hikes were only intended as a buffer for higher government spending during “times of crisis and to provide the government with fiscal space in the worst-case scenario.”

“With double-digit growth in tax collection, the government is well on track in meeting its fiscal consolidation goals,” Mr. Recto said.

According to the DoF, total tax collections jumped by 13.55% to PHP 931.5 billion in the first three months of 2025, citing stronger tax administration and enforcement.

The Bureau of Internal Revenue’s (BIR) collections jumped by 16.67% to PHP 690.4 billion as of end-March. Revenues generated by the Bureau of Customs (BoC) rose by 5.72% to PHP 231.4 billion.

“This was primarily due to both revenue agencies’ continued success in strengthening tax administration, digitalization, and enforcement efforts,” the DoF said.

This year, the government is projecting to collect PHP 4.64 trillion in revenues. Of this, PHP 3.23 trillion is expected to come from the BIR and around PHP 1.1 trillion from Customs.

Mr. Recto said the National Government’s (NG) revenue levels are “more than sufficient to support the expenditure requirements.”

The government is also managing its deficit and debt levels, he added.

The government’s deficit ceiling is capped at 5.3% of gross domestic product (GDP) this year. It is seeking to bring this down further to 3.7% by 2028.

The International Monetary Fund  earlier said that the Philippines has space to further enhance its tax efficiency, particularly in excise taxation, value-added tax and tax incentives.

Latest data from the DoF showed that the NG’s revenues as a share of GDP reached 16.72% in 2024, up from 15.73% in 2023.

However, the DoF’s withdrawal of its proposed tax hikes is considered moot since the CMEPA was already ratified by Congress last February. The bill is set to be transmitted to Malacañang for the President’s signature.

“Raising these taxes could have risked discouraging property transactions, capital mobility, and intergenerational wealth transfers, which are crucial for sustaining domestic consumption and investment,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message.

The government should carefully evaluate which tax measures to implement, ensuring they do not result in revenue losses while maximizing potential gains for the state, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Salceda said the government should pursue taxes on luxury goods if it wants to generate additional revenues. 

“That is a better tax on the wealthy,” he said.

Nixing the proposed hike on capital gains tax was a disappointing move, as it could have been a “small step” towards taxing wealthy Filipinos, Jose Enrique “Sonny” A. Africa, executive director of think tank Ibon Foundation, said in a Viber message.

“Keeping the lower rates on capital gains, donor’s and estate taxes reinforces fiscal inequity to favor the wealthy,” he said. — Kenneth Christiane L. Basilio, Reporter with Luisa Maria Jacinta C. Jocson

State spending on infrastructure rose by 23.1% in the first two months of 2025, as the government ramped up disbursements for public works projects ahead of the election ban, the Department of Budget and Management (DBM) said.

In its latest disbursement report, the DBM said spending on infrastructure and other capital outlays jumped by 23.1% to PHP 148.3 billion as of end-February from PHP 120.5 billion in the same period last year.

“The robust infrastructure spending outturn was mainly credited to the disbursement performance of the Department of Public Works and Highways (DPWH),” it said.

The DPWH completed carryover infrastructure projects, as well as made payments for right-of-way settlements and emergency and disaster-related civil works. It also logged higher contractor billings and expedited the processing of accounts payable.

The Budget department said some of the DPWH projects included construction and maintenance of roads, bridges, flood control structures and multi-purpose buildings.

“Furthermore, the direct payments made by development partners for progress billings of ongoing foreign-assisted projects of the Department of Transportation, such as the North-South Commuter Extension Project, South Commuter Railway Project, Davao Public Transport Modernization Project, as well as the DPWH for its Pasig-Marikina River Channel Improvement Project, helped sustain the strong infrastructure and other capital expenditure performance during the first two months of the year,” it said.

Data from the DBM showed overall infrastructure disbursements, which include infrastructure components of subsidy/equity to government corporations and transfers to local government units, jumped by 19.3% to PHP 182.9 billion in the January-to-February period from PHP 153.4 billion a year ago.

Total NG disbursements as of end-February jumped by 13.8% to P822 billion, mainly due to faster infrastructure spending and allotments to local government units.

“Disbursements for March 2025 likely improved significantly as line agencies were expected to have utilized their remaining cash allocations that have been fully credited during the first quarter of the year. Non-utilization would let the cash allocations lapse on the last working day of the quarter,” the DBM said.

It noted that agencies were expected to have accelerated disbursements ahead of the election ban on the release of public funds that started on March 28.

“Spending for April 2025 is expected to temporarily slow down as the election-related prohibition might impede the implementation of some programs and projects,” the DBM said.

However, the department noted that disbursements will likely pick up in the latter part of May to June after the election ban is lifted.

The midterm elections are scheduled for May 12.

The DBM noted that Commission on Elections had exempted some key infrastructure projects, as well as some major health, housing, agriculture, education and labor sector programs, were exempted from the election ban.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted the government accelerated the progress of infrastructure projects ahead of the election ban.

“Completions would serve as metric of achievements especially by incumbent elected officials who will run again and for the groups/parties that they represent,” he said in a Viber message.

Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc. said the expected lower infrastructure spending in April is merely “transitory.”

“I see infrastructure spending growing faster this year as (interest) rates are expected to go down, higher fiscal space, and fiscal efforts for growth,” he told BusinessWorld via Viber on Monday.

Mr. Erece said the higher spending can also boost “fiscal efforts to support economic growth amid global uncertainty and faltering demand.”

The government’s infrastructure program for this year is set at PHP 1.538 trillion, equivalent to 5.4% of gross domestic product. – Aubrey Rose A. Inosante, Reporter

The Philippines is more likely to achieve upper middle-income status by 2027, a year later than the government’s target, given the current growth prospects, the World Bank said.

“The more likely scenario is that it will take a couple of years. It won’t be 2026. It’s more likely that it may be 2027,” World Bank Group Lead Economist and Program Leader for the Prosperity Unit for Brunei, Malaysia and the Philippines Gonzalo Varela told reporters on the sidelines of an event on Monday.

“The reasonable scenario is we expect a couple of years. It would take the Philippines a couple of years to pass that upper middle-income threshold.”

The Marcos administration is targeting to achieve upper middle-income status by 2026.

Based on the latest data from the World Bank, the Philippines is currently classified as a lower middle-income country as its gross national income (GNI) per capita was USD 4,230 in 2023. However, this was higher than its GNI per capita of USD 3,950 in 2022.

According to the World Bank’s classification, an economy is considered lower middle-income if the GNI per capita level is between USD 1,146 and USD 4,515, while upper middle-income countries are those that have a GNI per capita of USD 4,516 to USD 14,005. The World Bank typically releases its income classification data every July.

For his part, Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan said the country is still on track to meet its target of reaching the higher income class by next year.

“Barring major external shocks, and assuming a favorable global trade environment, we are well-positioned to achieve upper middle-income status by 2026,” he said in a speech during the event.

“Nonetheless, we remain acutely aware of the uncertainties that confront the global economy — ranging from systemic risks in economic institutions and technological disruption to environmental challenges.”

However, Mr. Varela said the Philippines would only be able to graduate to the upper middle-income level next year if it is able to deliver an “outstanding growth performance.”

“With our forecast that is just out, it will not be 2026. Does that mean that it cannot be 2026?  No, it can if you deliver much faster growth… we believe that it’s more likely for it to be 2027,” he added.

The World Bank slashed gross domestic product (GDP) growth forecasts for the Philippines this year and next year amid uncertainty and the looming global slowdown. Philippine GDP is now expected to expand by 5.3% this year and by 5.4% in 2026, well below the government’s 6-8% target for both years.

Mr. Varela said the Philippines needs to ensure sustained growth of per capita income.

“Given the rates of growth that we have been seeing and given the conditions of the domestic economy and the global economy, under reasonable scenarios, we think that in the next couple of years, this is feasible for the Philippines to achieve,” he added.

The Philippines will also need to implement key reforms to hurdle its current income class and sustain the growth needed to remain in the upper middle-income level.

Mr. Varela cited the amended Public Service Act, which allows full foreign ownership in key public services like telecommunications, airlines and railways.

“On paper, it has been passed. But there are a number of actions that need to be taken so that its full implementation happens. That is something that is going to create a lot of opportunities for investment and for productivity growth.”

He also noted reforms that will simplify regulations to make it easier for foreign players to enter the country.

“For a foreign firm, it takes 106 days for a foreign firm to be registered in the Philippines. That is substantially more than what we see in the rest of the world.  In Singapore, it takes about 10 to 15 days,” Mr. Varela added.

He noted these reforms will help the Philippine economy growing “past the threshold.”

Impact of US Tariffs

Meanwhile, Mr. Varela also cited the impact of the tariff policies on the country’s growth outlook.

“The Philippines is a small open economy. As a small open economy, what happens in the rest of the world matters for the Philippines,” he said.

“An increase in global uncertainty is going to be detrimental for the Philippines’ growth prospects. It will likely affect exports, and it will affect investment. Investment is heavily affected by policy uncertainty.”

The United States slapped a 17% reciprocal tariff on the Philippines in early April but paused this policy for 90 days. However, the baseline 10% tariff remains in effect.

As global uncertainty weighs on investment, Mr. Varela said doubling down on domestic reforms will help support growth.

“That’s why I was mentioning streamlining regulations, so that you reduce the costs of foreign and domestic investment in the Philippines. It’s something that is going to help offset that.”

These reforms should also make logistics cheaper, which is crucial for the Philippines, being an archipelagic country.

“Reforms that open up the domestic trade, domestic transport sectors. These are reforms that are going to help the economy keep growing, even with global uncertainty increasing,” he added.

Once the country transitions to the next income level, Mr. Varela said there will be many opportunities it can capitalize on.

“For example, after graduation, (though) not immediately, after three consecutive years of keeping that level of income above the threshold of upper middle-income, there are some developed countries that reduce concessions on trade,” he said.

The Philippines being a beneficiary of the EU Generalized Scheme of Preferences Plus (GSP+) could also be affected after it graduates.

“This is why the government of the Philippines has been working with the European Union in negotiating a free trade agreement,” Mr. Varela said.

“That way, the idea there is that while you lose GSP+, you can move into an agreement in which you have an FTA.”

Meanwhile, DEPDev Undersecretary Joseph J. Capuno noted that the transition to an upper middle-income level will entail a “shift in access to resources.”

“As countries move up the income ladder, eligibility for concessional financing and access to traditional official development assistance begin to diminish,” he said at the same event.

“With this, new priorities arise — necessitating stronger domestic institutions, heightened international cooperation, more sophisticated mechanisms for managing debt and raising revenue, provision of innovative solutions, and a renewed focus on effective financing for development.”

Mr. Capuno said there is a need to adopt new frameworks for sustainable development and establish more and stronger partnerships.

“Improving coordination among development partners can better harmonize support to the country. This means working together to design strategies that support transitions of middle-income countries (MIC) to a higher income threshold.”

The government will implement reforms in its Medium-Term Fiscal Framework 2022-2028 as it prepares to transition to an upper middle-income economy, Mr. Capuno said.

This will “rebuild fiscal space and improve credit ratings, emphasizing the government’s commitment to fiscal consolidation and debt sustainability.”

“We also underscore the importance of technical and financial assistance that international organizations and financial institutions can extend to MICs to assist in the formulation of sound revenue and tax policies and strengthen capacity for tax collection and revenue generation,” he said.

Country partnership

Meanwhile, the World Bank is currently in the process of preparing its new country partnership framework for the Philippines.

“The Philippines remains a very important country for the World Bank. Our partnership with the Philippines is extremely important… that partnership is going to turn 80 this year,” Mr. Varela said.

The framework, which will cover 2025 to 2031, is set to be finalized and released by the end of June.

“We are thinking of around three main outcomes that have to do with improving quality and access to human capital. That has an element related to education, but also an element related to nutrition and health,” Mr. Varela said.

Meanwhile, the second outcome is related to job creation in the private sector, while a third outcome involves resilient communities.

“We are expecting the Philippines to become an upper middle-income economy within the time frame of that framework,” Mr. Varela added. – Luisa Maria Jacinta C. Jocson, Senior Reporter