Cyrille Schwellnus
OECD Economic Surveys: Philippines 2026
Abstract
The Philippines is among the fastest-growing emerging market economies globally, with growth having rebounded and inflation moderated following recent shocks thanks to a robust macroeconomic policy framework. A dynamic modern services sector — especially in business process outsourcing — continues to drive performance. However, public finances are strained, with budget deficits and debt well above pre-pandemic norms. Fiscal reforms to mobilise revenues and enhance spending efficiency would allow the Philippines to put public debt on a more prudent path, while providing room to leverage the country’s competitive strengths through investments in infrastructure, education and social protection. Curtailing pervasive tax expenditures, as well as strengthening governance standards for public spending, including at the local government level, is key to achieve broad-based and sustainable economic growth amid headwinds.
1.1.1. The Philippines is among the world’s fastest-growing emerging market economies
In recent years, the Philippines has been among the fastest-growing emerging market economies globally (Figure 1.1, Panel A). On average, excluding the pandemic downturn and rebound of 2020-22, the country’s economy has grown at an average of over 6% annually since 2011. By comparison, the ASEAN-4 (Indonesia, Malaysia, Thailand and Viet Nam) grew at an average of around 5% and G20 emerging markets grew at an average of just under 4%. A significant factor driving the Philippines’ economic success is its growing and youthful population, which fuels household consumption. Private consumption accounts for approximately 75-80% of GDP, one of the highest shares in the region, whereas the trade balance has been in persistent deficit (Figure 1.1, Panel B). This reliance on domestic consumption contrasts with countries like Indonesia, Malaysia, Thailand and Viet Nam, where private consumption accounts for only around 60% of GDP on average while investment and exports play a much larger role.
Note: ASEAN-4 includes Indonesia, Malaysia, Thailand, and Viet Nam. In Panel A, for ASEAN-4 and G20EMEs, 2025 includes forecasts for 2025Q4. In Panel C, personal remittances from Bangko Sentral ng Pilipinas include net compensation of employees, personal transfers and capital transfers between households.
Source: OECD Economic Outlook database, World Bank WDI database, OECD database (ADB), CEIC.
A significant driver of the high share of consumption in GDP is the inflow of remittances, which accounted for around 7½ percent of GDP in recent years and play an instrumental role in sustaining household incomes and consumer spending (Figure 1.1, Panel C). Remittances help to support private consumption, even during economic downturns, such as the COVID-19 pandemic, enabling households to maintain purchasing power amid fluctuations in domestic income. Despite this, the COVID-19 pandemic led to a severe economic contraction, with GDP shrinking by 9½ percent in 2020, one of the deepest recessions in the region. This was largely due to the country’s strict and prolonged lockdown measures and its specialisation on services. Tourism, hotels and restaurants, as well as retail trade were severely impacted by lockdowns and mobility restrictions. Additionally, the Philippines’ limited capacity to provide fiscal support left it more exposed to the economic fallout than its neighbours. The country only began to see substantial growth again in 2022, with a 7.6% rebound. The recovery has since gained momentum, with strong domestic consumption driving economic growth in 2023 and 2024.
Services are the dominant source of growth, contributing 4.2 percentage points to real GDP growth of 5.7% in 2024 and have steadily expanded their share of GDP over the past two decades. This trend mirrors broader structural shifts observed in many emerging market economies, where urbanisation, rising domestic demand, and external demand for tradable services — such as IT, finance, and business support — have driven a reallocation of resources away from agriculture and low-end manufacturing. However, the Philippines has an unusually high reliance on services relative to its level of income, while its industrial base remains narrower and its agricultural sector smaller and more volatile. In 2024, services accounted for 63% of GDP, well above regional peers (Figure 1.1, Panel D). The services sector comprises both traditional activities such as retail and transport and more dynamic modern segments, particularly business, financial, and IT-related services, which have grown rapidly and now account for a large share of value added.
Several factors underpin the high and rising share of services in the Philippine economy. The offshoring of business and professional services has generated strong external demand for English-language service exports, which the Filipino population is well-equipped to provide. Large and sustained inflows of remittances have fuelled private consumption and domestic demand for services. Rapid urbanisation and the expansion of the middle class have increased demand for retail, real estate, education, healthcare, and financial services. In parallel, government policy has supported the growth of information and communication technology, professional services, and finance through tax incentives and dedicated economic zones.
1.1.2. Exports are lower than in peers, with a strong focus on services
In 2024, the Philippines recorded total exports equivalent to 23% of GDP, comprising 12% in goods and 11% in services (Figure 1.2). This performance places the country well below its Southeast Asian peers, where goods exports alone account for 85% of GDP in Vietnam and 50-60% in Malaysia and Thailand, driven by strong manufacturing and assembly sectors. Meanwhile, the Philippine services exports are larger than those of most countries with similar per‑capita incomes and on par with higher-income economies with large services sectors. While not reaching the levels of specialised services hubs, this suggests a competitive advantage in services trade.
Goods exports are overwhelmingly led by the electronics sector— particularly semiconductors — while services exports are driven by the information technology and business process outsourcing (IT-BPO) sector and tourism (Figure 1.3). Specifically, IT‑BPO exports amounted to approximately 8% of GDP in 2024, underscoring the country’s strong international competitive position in the sector. Tourism exports amounted to about 2% of GDP, following a solid recovery in visitor arrivals after the pandemic. Exports are highly concentrated geographically, with China (including Hong Kong, China), the United States and Japan accounting for around 50% of total exports.
Source: World Bank WDI database.
Note: CHN+HKG refers to China plus Hong Kong (China). ROW refers to the rest of the world.
Source: OECD calculations based on Bangko Sentral ng Pilipinas (BSP), WTO STATS and UN Comtrade database.
The current account balance has turned from an average surplus of 3% of GDP over 2010-15 to a deficit of about 3% of GDP over 2022-24 (Figure 1.4). This reflects the increase in the trade deficit from around 5% of GDP to about 12% of GDP, which in turn is driven by the increase in the goods trade deficit to just under 16% of GDP on average over 2022-24, whereas the services trade balance has recorded an average surplus of about 4% of GDP. The large goods trade deficit partly reflects fossil fuel and food imports but also trade deficits in other raw materials and capital goods. The sources of financing of the current account deficit are relatively stable, with foreign direct investment accounting for about one-third of total financial inflows in 2024. Foreign reserves are in line with international adequacy standards, amounting to about 8 months’ worth of imports of goods and payments of services and primary income, as well as about 4 times short-term debt based on residual maturity (BSP, 2025).
Current account composition, balances, % of GDP
Source: CEIC.
Strong specialisation on services partly stems from comparative advantages. The country ranks second in Asia for English proficiency (Education First, 2024), a product of the long-standing use of English as the primary language of education and cultural alignment with Western norms. This linguistic edge combined with relatively low labour costs positions the Philippines as an attractive alternative to higher-cost competitors. The IT‑BPM sector has capitalised on this endowment: in 2024 it generated revenues approaching 8% of GDP, supported by public policies such as tax incentives, economic zones, and streamlined remote-work regulations for IT-BPO firms. As global outsourcing demand shifts from basic voice services to high-value knowledge process outsourcing, such as software development and data analytics, the Philippines is adapting to these developments and the recently witnessed ability to scale up within these premium niches reflects a deliberate, efficiency-based specialisation (Box 1.1).
The IT-BPM sector is a pillar of the Philippine economy, employing approximately 1.8 million workers—3.7% of total employment—and generating revenues amounting to around 8% of GDP (IBPAP, 2025). Employment is concentrated in business process outsourcing – contact centres and back-office operations – but the industry has diversified into higher-value segments such as global capability centres (in-house service hubs), healthcare information management, and IT and software (Figure 1.5). The country’s entry into this space began in the 1980s with low-skill data entry, gradually expanding into IT and software services in the 1990s. Two major policy reforms were instrumental in the sector’s take-off: the opening of the telecommunications sector to competition in the mid-1990s and the establishment of economic zones with fiscal incentives for foreign investors. The creation of the Philippine Economic Zone Authority (PEZA) and the provision of tax holidays were key to attracting multinationals. Complementing these regulatory measures were labour market advantages: a large pool of tertiary-educated, English-speaking workers with cultural affinity to Western markets.
Shares in total IT-BPM employment, 2024
Note: The purple box includes Animation and Game development.
Source: IBPAP
Despite sustained growth, the BPO industry faces serious structural and technological threats, with AI posing the most urgent risk. According to Cucio and Hennig (2025), BPO workers are among the most exposed to generative AI. While some roles may be complemented by AI, enhancing productivity, many BPO positions — particularly in call centres and clerical support — are at risk of elimination. Other challenges include labour supply constraints in high-skill areas like data science and machine learning, and rising competition from countries with more advanced digital infrastructure. The Philippines also risks losing its first-mover advantage if it cannot upgrade its workforce fast enough to meet the demands of AI-intensive global service delivery.
Recognising these challenges, the government and industry stakeholders have launched a range of upskilling and reskilling programmes aimed at bolstering the digital readiness of the workforce. The “Trabaho Para sa Bayan Plan” outlines a ten-year roadmap for workforce development, aiming to align training systems with evolving market demands. The Technical Education and Skills Development Authority (TESDA) has introduced micro-credential programmes and sector-specific short courses, while the Department of Information and Communications Technology runs an IT-BPM Upskilling Programme targeting digital and AI-related skills. The IT & Business Process Association of the Philippines (IBPAP) has partnered with the tech talent platform (StackTrek) to provide AI and programming education, including the rollout of an AI and Programming Academy. In parallel, IBPAP has collaborated with Google to offer industry-recognised certificates in high-demand fields such as cybersecurity and data analytics. These training schemes are increasingly embedded into secondary and post-secondary education, supported by partnerships with the Department of Education and TESDA.
Strong specialisation on services partly also reflects constraints on manufacturing development. Manufacturing competitiveness in the Philippines is hampered by high input costs and infrastructure deficiencies. Industrial electricity prices stand near USD 0.15/kWh — about 50% above rates in Indonesia and Viet Nam — reducing margins for energy-intensive sectors, driven by limited competition in generation and distribution (Figure 1.6; Chapter 2). Compounding this, logistics inefficiencies inflate transaction costs: logistics expenses account for roughly 27% of sales, a significantly higher share than in Indonesia, Thailand and Viet Nam, driven by port congestion, fragmented transport systems, and customs bottlenecks (DTI, 2018). Complex bureaucratic procedures and inconsistent local implementation undermine manufacturing development by introducing costly delays, duplicative compliance burdens, and regulatory uncertainty. For instance, manufacturers and logistics providers must navigate fragmented permitting processes involving multiple agencies, which drives up costs and deters investment. These factors erode the advantages of low wage rates. Monthly wages in manufacturing, averaging around USD 270 (JETRO, 2024), are lower than those of regional competitors but this advantage vanishes once elevated energy and logistics costs are factored in.
Electricity prices for commercial use, USD per kWh, average 2023-25
Source: GlobalPetrolPrices.com
Due to these constraints on manufacturing development, the Philippines has largely missed out on opportunities from the reconfiguration of global supply chains since the United States imposed the first round of tariffs on China in 2018. In recent years, multinational firms have adopted so-called China+1 strategies — diversifying production by adding an additional location outside China to reduce geopolitical and supply chain risks. The weak response in the Philippines is visible in the declining market share in the United States – which is in stark contrast to developments in Thailand or Viet Nam – signalling that few firms rerouted production to the Philippines post-tariffs (Figure 1.7).
Change in the share of US goods imports, 2018-2024, percentage points
Source: OECD calculations based on UN Comtrade.
Inward FDI has also remained below some regional peers, such as Viet Nam and Malaysia, which have emerged as preferred destinations for new manufacturing FDI (Figure 1.8, Panel A). The Philippines continues to draw a narrow set of investors: inflows remain heavily concentrated from Japan and neighbouring ASEAN economies, exposing the country to partner-specific shocks and limiting technology spillovers (Figure 1.8, Panel B). By contrast, major European and US firms have deployed only modest capital, despite the country’s sizeable domestic market and improving policy environment. There is also considerable untapped potential to deepen links with the rest of Asia, particularly investors diversifying supply chains within the region. While Viet Nam’s geographic proximity to China gives it an edge over regional peers, reliable power generation, well‑developed transport and port infrastructure, and efficient administrative systems underpinned the export surge and strong FDI since 2016. Taking advantage of the ongoing reconfiguration of global supply chains in response to the most recent escalation of global trade tensions requires reforms across electricity pricing, logistics, as well as trade and FDI policies. These policies are discussed in detail in Chapter 2.
In the medium term, strengthening human capital development through educational reforms will be key to preserving the Philippines’ strong comparative advantage in services while enabling the upgrading of its manufacturing sector. This is particularly important in the context of persistent emigration of skilled workers — especially in health, education, and technology — that risks constraining the country’s domestic skills base. Over the past decade, the Philippines has made notable progress in expanding access to education and aligning its system with international standards. The introduction of the K–12 reform in 2013 extended basic education from 10 to 12 years, adding two years of senior high school and making kindergarten compulsory. This major structural change has helped raise enrolment and completion rates in secondary education, with roughly two-thirds of students now completing upper secondary — up markedly from a decade ago. Public spending on education has also increased, and the government has introduced new initiatives to modernise the curriculum, improve teacher training, and strengthen early childhood and technical-vocational pathways. Despite these advances, major challenges persist. Learning outcomes remain among the weakest in the region: in the OECD’s PISA assessment, around 80% of 15-year-old students did not reach baseline proficiency in mathematics, reading, or science. Compared with peers such as Vietnam, Malaysia, and Thailand, Philippine students demonstrate lower cognitive skills and greater learning gaps.
Note: In Panel B, percentages are based on net equity other than reinvestment of earnings.
Source: WorldBank WDI, Bangko Sentral ng Pilipinas.
Despite recent increases, education spending in the Philippines remains modest, especially when taking into account the large share of young people in the population, with about 50% of the population below the age of 25 according to the 2020 census. Public expenditure on education is about 3.9% of GDP, similar to regional peers, but well below the OECD average of 5.0% This spending gap translates into overcrowded classrooms, teacher shortages, and limited materials in poorer regions. Recent budget increases and the foreseen 2026 budget of around 4.5% of GDP are positive steps, but greater efficiency and equity in spending are needed. Providing schools with more autonomy over resource management, while reinforcing transparency and accountability, could improve outcomes. Targeted funding for disadvantaged areas and early learning, coupled with predictable multi-year financing, would help narrow inequalities and ensure that rising education spending translates into measurable learning gains.
Teacher quality remains a key constraint to learning outcomes. Many teachers lack strong subject mastery, particularly in mathematics and science, and receive limited pedagogical support. In contrast, Viet Nam’s success in PISA reflects rigorous teacher recruitment, ongoing mentoring, and performance-linked incentives. The Philippines is taking steps to professionalise the career through higher entry standards, results-based evaluations, and expanded in-service training, but implementation remains uneven. Scaling up mentoring and peer learning, aligning pre-service curricula with classroom needs, and strengthening school leadership would reinforce these efforts. Embedding continuous professional development and linking promotion to demonstrated teaching competence could improve motivation and accountability. Leveraging digital tools for teacher training and classroom support would also help bridge capacity gaps, especially in remote areas, and move the system closer to regional best practice.
Curriculum reform is central to tackling weak learning outcomes. The new MATATAG K–10 curriculum aims to streamline content, strengthen foundational literacy and numeracy, and focus on essential competencies. Priority is being given to early-grade reading and mathematics, where learning gaps are largest. However, language transitions remain a major challenge. The use of local mother tongues in early grades has improved comprehension, but the shift to Filipino and English in later years often disrupts learning. Clearer sequencing, better teaching materials, and improved teacher training for multilingual instruction are needed. A simpler, better-aligned curriculum — supported by capable teachers and adequate resources — will be critical to ensure that more years of schooling translate into stronger skills and improved employability in both manufacturing and modern services.
1.1.3. Employment has recovered, but job quality and female participation remain low
The labour market has fully recovered from the COVID‑19 shock. In November 2025, the unemployment rate stood at 4.4%, well below the pre‑pandemic average of about 5.6% over 2015–19. Underemployment — where workers seek more hours or more suitable jobs — fell to 12% in the quarter ending in September 2025, below its pre-2020 norm (Figure 1.9, Panel A). These low unemployment and underemployment rates reflect strong employment growth rather than falling labour force participation, which remains close to its 2015–19 average. The share of dependent employment is near the pre-pandemic peak (Figure 1.9, Panel B), indicating that job creation has not been driven by a shift into own-account or unpaid family work in the informal sector. Net emigration – at around 150 000 annually – remains below the pre-crisis average and the large emigration wave of the mid-2000s, when annual emigration amounted to 350 000 people annually between 2005-09, suggesting improved domestic job prospects (Figure 1.9, Panel C). Overall, the labour market appears to be strong, with sustained job creation supported by buoyant growth in labour-intensive sectors such as construction and services.
Note: In Panel A, data before 2021 refers to the first month of the quarter.
Source: PSA OpenStat, CEIC, World Bank (Gender Data Portal).
Despite robust employment growth over recent years, the labour market faces two persistent challenges: low job quality – mainly due to high informality – and low female participation. Informality remains widespread, with around two-thirds of the employed population not contributing to the social security system. This leaves the majority of workers without coverage by pensions or other protections (Chapter 3) and reduces incentives for firms to invest in employee training. Informal workers also lack job security, as they are not protected by rules on security of tenure. Among wage and salary workers – who account for about 65% of total employment (Figure 1.9, Panel B) – roughly 40% earn less than the mandated minimum wage. 35% of workers are self-employed and therefore not legally entitled to it. These patterns point to a segmented labour market, where a large share of workers is effectively excluded from key legal and institutional protections, including income floors and access to benefits. In addition, the labour market continues to underutilise female talent. Female labour force participation stands at just over 50%, significantly below that of men and well below Southeast Asian peers (Figure 1.9, Panel D). Key barriers include norms and stereotypes that discourage female employment, especially after childbirth, and the unequal distribution of unpaid care responsibilities (Box 1.2).
The Philippines perform strongly on the World Economic Forum’s Global Gender Gap Index 2024, which aims to measure gender parity across the four dimensions: economic participation and opportunity; educational attainment; health and survival; and political empowerment. Ranking 25th out of 146 countries, the Philippines have the highest score in Asia, according to this index. Nonetheless, female labour force participation remains constrained by persistent social norms and stereotypes that shape the domestic division of labour. Over 80% of women and 75% of men agree that a man’s role is to earn money while a woman’s role is to care for the home and family (Belghith and Fernandez, 2021). These attitudes are deeply entrenched in both traditional and religious beliefs and reinforce expectations that women, especially those who are married or have young children, should withdraw from the workforce. The result is an unequal burden of unpaid care work, with nearly 90% of economically inactive women citing family responsibilities as their primary reason for not working. By contrast, limited access to affordable childcare appears to play only a marginal role: just 27% of non-working women see childcare as a constraint, and only a third of them believe improved access would enable them to join the labour market. These findings point to normative and cultural barriers, rather than service gaps, as factors holding back women’s full economic participation in the Philippines (OECD, 2023).
Given the strong cultural expectations that women prioritise caregiving over paid work, expanding access to flexible employment is crucial. Policies that promote remote and hybrid work arrangements can enable more women — especially those with care responsibilities — in balancing paid and unpaid work. These policies should be designed alongside measures that promote a more equal distribution of domestic responsibilities between women and men. Recent legislative reforms have broadened the scope for remote work by easing regulatory limits on work-from-home arrangements, particularly for export-oriented firms. These efforts should be reinforced by expanding digital skills training for women, including those returning after caregiving absences or living in underserved areas. Support for women’s entrepreneurship also provides a valuable entry point, especially for those seeking autonomy over work location and schedules. Programmes such as the Gender-Responsive Economic Actions for the Transformation of Women Project and the Women’s Enterprise Fund have shown encouraging results in helping women-led businesses expand and create jobs.
Reforms that ease barriers to female employment need to be complemented by efforts to reduce gender stereotyping. Gender stereotypes in the media and in the materials that parents and educators use to raise children may influence educational and occupational sorting, and thereby the gender wage gap (Bertrand, 2020). A number of European countries, including Belgium, Finland, France, Norway and the United Kingdom, have introduced legislation that aims to limit the use of gender stereotypes in advertising. Past experiences from the Philippines, but also from India and Saudi Arabia, show that targeted interventions such as exposure to role models, school-based gender education and social media campaigns can change attitudes and behaviour over time, particularly among young people and men (OECD, 2024b; Jayachandran, 2021; Belghith and Fernandez, 2021).
These labour market challenges are amplified by the demographic profile. With a median age of about 26 years, the Philippines has one of the youngest populations in the region. The working-age population will continue to expand until around 2045, meaning that the labour market must absorb large numbers of new entrants over the coming decades. This demographic momentum raises the stakes for labour market policies. Generating enough quality employment to meet the aspirations of a growing youth cohort — alongside efforts to draw more women into the workforce — will require more than just sustained growth. Setting social protection and labour regulations at levels that are more compatible with actual labour market conditions would allow to lower barriers to formal job creation and allocate resources more efficiently. Chapter 3 of this Survey proposes a reform package covering social contributions, minimum wages and employment protection rules to balance worker protection with the incentives and capacity of firms — particularly small and medium-sized enterprises — to hire formally.
1.1.4. Inflation has receded
In the wake of the COVID-19 pandemic, the Philippines experienced volatile inflation marked by pandemic-induced supply shocks, global commodity disruptions, and subsequent disinflation. Headline inflation surged in 2022 and 2023, peaking at 8.7% in January 2023, but receded sharply thereafter, reaching 1.8% in December 2025 —below the lower end of the central bank’s tolerance band of 2–4% (Figure 1.10). Core inflation has also declined and has remained within the tolerance band throughout 2025, indicating an absence of broad-based demand pressures. Disaggregated inflation data show that the deceleration was concentrated in food and energy, which together constitute over 50% of the CPI basket. Food inflation fell to 0.6% in the second half of 2025, driven primarily by a sharp decline in rice prices on the back of normalising domestic and global supply and the reduction in rice import tariffs. Energy and transport inflation have also eased amid falling global oil prices, but the currency has depreciated by about 6% since May.
Note: Annual inflation.
Source: CEIC.
In response to easing price pressures and weak domestic demand, the central bank has lowered its policy rate by a cumulative 200 basis points during the ongoing easing cycle, bringing it to 4.50% by December 2025. With inflation expectations well anchored, core inflation at the lower bound of the target range, and the output gap still slightly negative, there may be scope for further monetary easing to support activity. However, monetary policy should remain firmly data-driven. In particular, interest rate decisions should reflect not only the ongoing transmission of earlier monetary easing, but also the potential for renewed price pressures stemming from weather-related disruptions, volatility in global energy markets, or shifts in the exchange rate. A forward-looking and flexible monetary policy stance will help ensure that inflation remains within target while sustaining the recovery in domestic demand.
1.1.5. Looking ahead, growth and inflation are expected to pick up gradually
Real GDP growth fell from 5.7% in 2024 to 4.4% in 2025 but is expected to pick up to 5.1% in 2026 and 5.8% in 2026 (Table 1.1). Following strong momentum in the first half of 2025, growth slowed in the second half of the year on the back of a sharp contraction in public construction and weaker household consumption amid a corruption scandal linked to public works. Investment is expected to recover over 2026-27 as public construction normalises and borrowing costs decline, while robust labour market performance amid low inflation will support real household incomes. Despite the recent exemption of about half of Philippine exports to the United States from new bilateral tariffs of 19% and relatively low bilateral merchandise exports (around 2½ per cent of GDP), the recent increase in global trade frictions is expected to weigh on external demand and export revenues. Inflation is expected to rise gradually to the mid-point of the central bank’s target range, as temporary effects from lower food and global energy prices fade, the recent depreciation of the currency feeds into domestic prices, and activity gradually recovers.
Risks are tilted to the downside. A more persistent-than-expected weakness in public investment related to tighter corruption controls and weaker investor confidence could weigh on domestic demand over 2026. On the upside, the recent easing of foreign investment rules and enhanced fiscal incentives offer a chance to offset headwinds from exports with higher capital inflows.
Note: 1. National government.
Source: OECD.
Tail risks that could lead to major changes in the outlook include natural disasters, energy supply disruptions, and AI-driven labour market dislocation (Table 1.2). The Philippines is one of the most disaster-prone countries globally, experiencing an average of 20 typhoons per year, with frequent flooding, landslides and earthquakes. These events impose chronic economic costs — damaging infrastructure, displacing communities, disrupting agriculture, and diverting fiscal resources away from longer-term priorities. The country is also highly dependent on imported fossil fuels — particularly coal and liquefied natural gas — making its energy system vulnerable to global price shocks, geopolitical instability, and supply chain disruptions. With the main domestic Malampaya gas field nearing depletion and frequent unplanned outages at baseload power plants, the risk of power shortages and energy-driven inflation is rising. These vulnerabilities could compromise industrial competitiveness, strain household budgets, and weaken investor confidence. Rapid advances in artificial intelligence and possible taxation of outsourced services in importing countries, such as the proposed Halting International Relocation of Employment (HIRE) Act in the United States, pose a structural threat to employment in business process outsourcing. Estimates suggest up to 36% of jobs may be affected by AI (Cucio and Hennig, 2025). Without large-scale reskilling programmes and stronger social protection, technological disruption could worsen inequality, depress consumption, and erode the gains from digital transformation.
Source: OECD.
The independent central bank (Bangko Sentral ng Pilipinas, BSP) has been implementing an inflation targeting framework since January 2002. Under this framework, BSP focuses on achieving price stability through explicit inflation targets that are jointly set and announced with the government via an inter-agency body (Development Budget Coordinating Committee, DBCC). In 2015 the inflation target was set at 3% with a tolerance band of 1 percentage point. Central to this approach is the BSP's commitment to transparency and accountability through regular public reporting on policy decisions, inflation assessments, and economic outlook, with explicit requirements to publicly explain any failure to meet targets and outline corrective measures to steer inflation back toward desired levels. The BSP employs various monetary policy instruments to achieve its inflation target, including adjustments to key policy interest rates, rediscounting facilities and reserve requirements (Box 1.3).
The inflation targeting framework has performed well, with monthly core inflation averaging 3.2% since 2015 and falling within the target range of 2-4% about 60% of the time. But the preponderance of supply shocks – such as shocks to food and oil prices, as well as natural disasters – in driving inflation developments in the Philippines poses challenges to the conduct of monetary policy (IMF, 2024b; Chapter 4). For instance, the sudden increase in food and energy prices on international markets in 2022 rapidly fed into domestic prices, driving up core inflation (Figure 1.11, Panel A).
The first line of defence against fast-rising food prices is to release rice, which accounts for just under 9% of the CPI, from the national inventory. This strategy was, for instance, implemented in early 2025 when a food security emergency was declared after rice prices reached a 15-year high and remained elevated. The government may also adjust rice tariffs to manage price pressures and has moved to a trigger-based rice tariff mechanism from January 2026, where the tariff may be adjusted automatically depending on global demand conditions. However, in some cases, these non-monetary measures may be insufficient to control price pressures. In these instances, the central bank needs to decide whether to allow the price spike to run its course or tighten its policy stance. Monetary policy cannot effectively counteract supply shocks, but repeated supply shocks nonetheless require central bank attention. If inflation overshoots the inflation target range for a sustained period, as has occurred recently, this could undermine the credibility of monetary policy. The BSP would need to react by tightening monetary policy, although this would depress domestic demand at a time when economic activity is already weakened by the adverse supply shock.
The BSP’s primary policy tool is the overnight reverse repurchase (RRP) rate. A symmetric interest rate corridor system, with the overnight deposit and lending facilities set 50 basis points below and above the RRP rate, respectively, guides short-term market interest rates. To manage liquidity more effectively, the BSP uses open market operations, including term deposit facilities and the issuance of BSP securities. Reserve requirements on peso and foreign currency deposits are also adjusted as needed to influence the amount of funds banks can lend. Additionally, the BSP engages in foreign exchange operations to mitigate excessive volatility in the exchange rate, which can impact inflation expectations. These tools are applied in a data-dependent manner, allowing the BSP to respond flexibly to evolving economic conditions while maintaining price stability. While the establishment of the Interest Rate Corridor system in 2016 has improved the alignment of certain short-term market rates with the policy rate, the interbank market continues to rely heavily on foreign exchange swap transactions. This means that the Philippine Interbank Reference Rate is influenced not only by domestic funding conditions but also US dollar funding conditions. This reliance on foreign exchange swaps introduces volatility in interbank rates and weakens the direct link with the policy rate. Additionally, the underdevelopment of the domestic repo market, characterised by limited standardisation and liquidity, hampers the establishment of a reliable short-term yield curve. To address these challenges, the BSP is implementing several measures to develop a liquid and standardised repo market. Firstly, rapid adoption of the Global Master Repurchase Agreement would provide a standardised legal framework, enhancing legal certainty and reducing counterparty risk in repo transactions. Secondly, transitioning from the current "tagging" system in repo operations – essentially setting aside securities in repo operations rather than delivering them – to the full delivery of securities would allow banks to trade these securities in the secondary market, thereby improving liquidity and price discovery. Additionally, the repo market's participant base could be expanded to include fund managers and trust entities, further deepening market liquidity.
An alternative to tightening monetary policy in response to adverse supply shocks would be to consider adjustments to monetary policy communication. BSP could communicate that, while firmly remaining committed to price stability in the medium term, it will allow inflation to temporarily overshoot the target range following extreme weather events if expectations remain well anchored. In doing so, BSP could increase the focus of its communication on core inflation, in addition to headline inflation. The BSP is currently conducting an external review of its monetary policy framework. The review aims to assess the appropriateness of the current inflation target, tolerance bands, policy horizon and other monetary policy arrangements to ensure continued effectiveness in achieving its price stability mandate. It also seeks to enhance the BSP’s forecasting capabilities and communication strategies, which are crucial given the frequent supply shocks, such as fluctuations in food and oil prices that significantly affect inflation dynamics in the Philippines. The review intends to strengthen the BSP’s forward-looking approach to monetary policy formulation by identifying areas for improvement in managing inflation expectations and supporting sound policy decisions.
Given that supply conditions are outside the central banks’ control and that tightening monetary conditions to bring demand in line with temporarily lower supply can reduce output more than necessary, efficient management of inflation expectations is crucial to deal with supply shocks. Existing surveys like the Business Expectations Survey (BES), the Consumer Expectations Survey (CES), and the BSP Survey of External Forecasters (BESF) provide valuable insights into inflation expectations, but there is room for improvement to better inform policy decisions. The BES and CES are conducted at the quarterly rather than monthly frequencies and only include expectations over the next 12 months as the longest horizon. The BSEF is available at a monthly frequency but mainly reflects the views of financial market participants and academic experts rather than the expectations of businesses and workers that are central to the price and wage-setting process. The authorities’ plan to conduct the BES and CES at monthly frequency is a positive step to provide the BSP with a more complete set of tools to monitor inflation expectations. Lengthening the horizon of all Surveys by eliciting a forecast over the next 5 years on top of the forecast over the next year would allow to distinguish the anchoring of inflation expectations more clearly from short-term inflation expectations.
Note: Panel A shows the annual inflation rate (year-on-year change) and its components.
1.The policy rate refers to the Overnight Reverse Repo Rate.
1. 3-month moving average of the bank lending rate.
Source: CEIC, Bangko Sentral ng Pilipinas.
Bank lending rates – which are crucial for monetary policy transmission in a bank-based economy like the Philippines – only increased by about 50% relative to the increase in the policy rate during the last tightening cycle (Figure 1.11, Panel B). One likely reason is the low pass-through of the policy rate to funding costs, as the interbank market continues to rely heavily on foreign exchange swap transactions. Another reason is the low pass-through of funding costs to lending rates, especially for households, as household lending rates are largely determined by credit risk premiums that dwarf the funding cost component. The pass-through of the policy rate to funding costs could be strengthened by measures to further develop the repo market (Box 1.3), while the pass-through of funding costs to lending rates could be strengthened by improving information on borrowers in the state-run credit registry of the Credit Information Corporation (CIC) to reduce credit risk premiums. This would involve enhancing the completeness and accuracy of the data, including by complementing it with information from utility companies and online shopping platforms.
The financial landscape in the Philippines is prominently shaped by its banking sector, which serves as the cornerstone of the financial system and lends around 50% of GDP to the private sector, according to internationally comparable data for the year 2024 (Figure 1.12, Panel A). While the banking sector is relatively large compared to some regional peers in terms of asset size, bank credit to the private sector as a whole is still smaller than in most peers (Figure 1.12, Panel A). Non-bank financial institutions also play a role, particularly in serving retail customers and small businesses, offering alternative sources of finance like microfinance, pawnshops, and cooperatives. The fintech ecosystem is still nascent but growing, especially in digital payments. Despite these access points, financial inclusion remains a challenge, with many vulnerable people having difficulty accessing formal financial services compared to other emerging markets. The public equity market is relatively shallow, with market capitalisation of domestic companies listed on the Philippine Stock Exchange around 50% of GDP, similar to Indonesia and Viet Nam but well below Malaysia and Thailand (Figure 1.12, Panel B). Initial Public Offering (IPO) activity and capital raised are substantially lower than in peer countries. The bond market is small, especially in the corporate bond segment, with total bonds outstanding amounting to around 60% of GDP (Figure 1.12, Panel C) and bonds issued by the private sector amounting to less than 10% of GDP (Figure 1.12, Panel D). A package of reforms focused on strengthening corporate governance; streamlining equity listing and bond registration rules; and broadening the investor base would boost capital market development (Box 1.4).
Note: In Panel A, data is from 2024 except for Vietnam (2022) and India (2021). In Panel B, data is from 2024 except for Indonesia (2023). According to national data, bank credit to the private sector has increased to 57.6% of GDP by end-July 2025. Panels C and D include non-consolidated debt securities in all currencies, all original maturities, issued by each country at nominal value. In Panel D, private sector debt securities are computed as the difference between the total economy and the general government.
Source: World Bank (panel A), World Bank WDI (panel B), BIS debt securities statistics and OECD ADB database (panels C and D).
Philippine banks mostly operate a traditional financial intermediation model, largely relying on deposits to finance lending and investment in primarily liquid assets. Non-performing loans are higher than in some regional peers, but capital ratios are in line with other emerging-market economies (EMEs) (
Figure 1.13, Panels A and B). Liquidity in the banking sector is ample, with banks holding large shares of liquid assets and loan-to-deposit ratios being lower than in regional peers. Lending is concentrated on non-financial corporations, with only 20% of loans going to households, as compared to 50% on average across EMEs (IMF, 2021). This partly reflects the prevalence of mixed conglomerate structures, with several of the largest banks being part of corporate groups that simultaneously control financial institutions and non-financial companies. In these conglomerate structures, banks may have direct incentives and implicit pressures to prioritise lending within the group. Lending to affiliated non-financial corporations may be perceived as less risky due to familiarity, greater information asymmetry advantages, and expectations of implicit guarantees from the parent group, but it may also give rise to conflicts of interest. An intragroup preference can crowd out lending to sectors perceived as less strategic to the group, such as households or small businesses outside the conglomerate. Moreover, banks within conglomerates may have fewer incentives to develop retail lending capabilities or invest in credit scoring infrastructure for household loans, which are often crucial for the profitability of standalone banks.
The Philippine’s capital markets remain small, despite solid macroeconomic performance. The recent Capital Markets Efficiency Promotion Act is a positive step to reduce transaction taxes, including the stock transactions tax and the documentary stamp tax, but challenges remain. These include weak corporate governance, underutilised public equity and bond markets, and a narrow investor base. Governance shortcomings stem from concentrated ownership among conglomerates, limited board independence, and weak oversight of related-party transactions. Public equity markets remain shallow, with few new listings and low capital raised, due to burdensome listing processes and unattractive shareholder returns. The corporate bond market is similarly constrained by high costs, limited issuance, and weak credit rating infrastructure. Institutional investors remain small relative to peers, partly due to strict regulatory investment limits, and household participation is low, reflecting limited savings and low financial literacy. These constraints prevent efficient mobilisation of capital, hinder investment in infrastructure and innovation, and limit the inclusiveness of economic growth.
These barriers could be addressed by a package of focused reforms (OECD, 2024a). First, regulators should be given greater resources and a clearer mandate to enforce corporate governance standards, particularly in ensuring board and audit committee independence and proper oversight of related-party transactions. Second, listing rules for the equity market and registration rules for the bond markets should be simplified and tailored — particularly for SMEs — while a programme to bring large unlisted firms and state-owned enterprises to market would broaden access to equity financing. Third, to expand the investor base, investment limits for pension funds should be relaxed and financial literacy should be enhanced to encourage participation in Personal Equity and Retirement Accounts (PERA).
Note: Data from 2025Q1, except for Colombia (2025Q2), South Africa (2024Q4), and the Vietnam (2024Q2).
Source: IMF Financial Soundness Indicators (FSI).
The authorities are closely monitoring mixed conglomerate structures, which can present financial stability risks if banks within a group provide preferential or excessive loans to affiliated companies. A failure in one segment of the conglomerate, especially a non-financial business, can trigger losses for affiliated financial institutions. Moreover, complex ownership webs, often involving cross-shareholdings and opaque ultimate ownership, can hinder effective monitoring and resolution. The authorities have implemented exposure limits for banks’ lending to affiliated firms; conduct network analysis to map systemic linkages; and require banks to put in place related-party transaction (RPT) policies, board oversight, disclosure and reporting of material related-party exposures inside conglomerates.
Supervisory colleges for major banking groups provide a venue for domestic regulators to exchange information relevant to the oversight of mixed conglomerates that encompass both financial and non-financial affiliates. This reflects the divided responsibilities across BSP, the Securities and Exchange Commission (SEC) and the Insurance Commission (IC). These colleges support basic coordination on group structures, intra-group exposures and emerging risks within groups that combine banking, insurance, securities and substantial non-financial activities. System-wide coordination takes place through the BSP’s Financial Stability Policy Committee (FSPC) and the inter-agency Financial Stability Coordination Council (FSCC), which also includes the Philippine Deposit Insurance Corporation (PDIC). These bodies help regulators monitor potential contagion channels within large groups and promote data sharing. The BSP uses these arrangements to deepen its understanding of mixed-conglomerate linkages and vulnerabilities, while more comprehensive tools for group-wide risk assessment continue to develop.
The authorities could further strengthen consolidated supervision frameworks. For instance, parent conglomerates could be required to report audited group-wide financial statements, including intra-group exposures, contingent liabilities, and cross-guarantees. Regulators could be empowered to conduct joint inspections across all affiliated entities, financial and non-financial, to assess group-level risk accumulation. In addition, enhancing disclosure rules is essential, including detailed ownership maps indicating ultimate owners and inter-company linkages. A public, searchable database of corporate group structure – similar to the DART repository in Korea – would improve transparency for investors and regulators. Strengthening governance requirements, such as requiring a majority of independent directors on bank boards within conglomerates, would help mitigate conflicts of interest and bolster the integrity of financial oversight.
Financial inclusion in the Philippines has significantly improved over the past decade, driven by a combination of regulatory reforms on cybersecurity and consumer protection, public sector initiatives, and the rapid growth of digital finance. The share of adults with a formal bank account increased from 29% in 2019 to 56% in 2021 (BSP, 2023). This progress reflects policy reforms such as the National Strategy for Financial Inclusion launched in 2015 and its recalibration in 2022; the establishment of basic deposit accounts with simplified know-your-customer requirements; and the expansion of agent banking, where banks appoint third-party outlets, such as pharmacies or pawnshops, instead of traditional branches to offer basic banking functions. The proliferation of mobile wallets, such as GCash and Maya, has further accelerated access to financial services, especially during the COVID-19 pandemic, when digital transfers were used for emergency cash assistance. These platforms have enabled millions of citizens to open accounts, send and receive money, and pay bills with minimal friction. Nonetheless, significant disparities remain, with rural populations, informal workers, and low-income groups still facing major access barriers. Looking ahead, further policy reforms are needed to close remaining inclusion gaps and harness the full potential of digital finance. The regulatory framework should support interoperability between bank and non-bank players, such as digital wallets and fintechs, to foster competition and ensure seamless user experience. The public sector could lead the way by using bank accounts and mobile wallets to pay social benefits, as this would strengthen incentives to open formal accounts. Enhancing financial and digital literacy through targeted public campaigns — particularly among women, rural residents, and informal workers — is essential to translating account ownership into meaningful usage.
1.4.1. The pandemic has driven up public debt
Prior to 2020, the Philippines’ prudent fiscal management, characterised by moderate fiscal deficits averaging around 2% of GDP over 2010-2019, reduced the public debt ratio to just below 40% of GDP in 2019 (Figure 1.14, Panel A). This had created the necessary fiscal headroom to implement substantial stimulus measures when the pandemic struck, including targeted cash transfers for vulnerable households and financial aid for businesses, demonstrating the value of building fiscal buffers during periods of economic expansion. The government's pandemic response strategy emphasised targeted social protection measures, with resources channelled toward sectors experiencing the most severe economic disruption, but the combined effect of higher expenditure and lower revenue due to the economic downturn resulted in a rapid increase in the budget deficit and public debt. In 2024, the government’s budget deficit of 5.7% of GDP and public debt of around 60% of GDP remained well above pre-pandemic levels, and above those in several Southeast Asian peers (Figure 1.14, Panel B).
Source: OECD ADB, IMF.
The authorities adopted a Medium-Term Fiscal Framework (MTFF) in 2022 to bring public debt on a declining path in the medium-term. The fiscal anchor of the MTTF is the public debt ratio, while the operational target is the deficit-to-GDP ratio. The framework's initial numerical targets – reducing the national government debt-to-GDP ratio below 60% by 2025 and reducing the deficit-to-GDP ratio to 3% by 2028 – have been revised, mainly to account for lower-than-expected GDP growth. The authorities currently aim to reach public debt below 60% of GDP and a budget deficit of 4.3% of GDP by 2028 and 3.1% by 2030. Fiscal consolidation will mainly rely on expenditure-saving measures, with revenue-enhancing measures accounting for only about one-fifth of the total consolidation effort despite the relatively low revenue-to-GDP ratio of 21%.
Reaching a budget deficit of 4.3% of GDP by 2028 appears broadly appropriate to balance fiscal prudence and economic growth amid global trade headwinds, but fiscal consolidation in 2026 could be stepped up and rely to a greater extent on revenue measures. Current plans aim for a deficit reduction of 0.2% in 2026, with an acceleration in the annual pace of deficit reduction to 0.5% of GDP in 2027 and 2028. Stepping up the pace of fiscal consolidation in 2026, while maintaining infrastructure investment of around 5% of GDP, would allow to maintain growth momentum, rebuild fiscal room to address possible future shocks and help bring debt on a more prudent path. Moreover, the feasibility of expenditure cuts amid rising spending pressures from infrastructure, education, social and climate transition spending, as well as relatively optimistic growth projections pose risks to the fiscal projections. Relying to a greater extent on revenue measures, as well as prudent growth assumptions based on the economy’s current potential, would limit the risk of any further revisions to the debt and deficit targets and enhance the credibility of the MTFF.
Public debt remains manageable, despite being above the level in several Southeast Asian peers, thanks to high nominal GDP growth, moderate interest rates, and prudent debt management. The average maturity of public debt is about 7 years and about 70% is denominated in domestic currency, limiting rollover and foreign currency risk. Debt sustainability analysis conducted for this Survey suggests that fiscal consolidation of 0.2% annually over 2025-26, as envisaged by the authorities, with no further fiscal consolidation thereafter, would lead to rising debt servicing costs and a rising public debt ratio (Figure 1.15). By contrast, bringing the budget deficit to 4.3% by 2028 – as recommended by this Survey and foreseen by the medium-term fiscal programme – would stabilise public debt at about 57% of GDP by 2040. Combining fiscal consolidation with structural reforms lifting the economy’s growth potential by around 1 percentage point, the same fiscal strategy would reduce public debt to around 51% of GDP by 2040. This would limit debt servicing costs and create fiscal space to deal with future domestic and international economic shocks, including natural disasters to which the Philippines is highly exposed.
Gross national government debt
Note: All scenarios incorporate rising pension costs due to population ageing, based on World Bank (2016a). The “2026 tax and spending policies” scenario assumes that the budget deficit reaches 5.3% of GDP by 2026, consistent with OECD forecasts and current government plans, and no additional fiscal consolidation thereafter. The “Fiscal consolidation” scenario assumes that the budget deficit reaches 4.3% of GDP by 2028, with no changes in tax and spending policies thereafter. The “Fiscal consolidation and pro-growth reforms” scenario assumes pro-growth reforms that raise the potential growth rate by 1 percentage point in addition to fiscal consolidation.
Source: OECD.
1.4.2. Mobilising more public revenues to meet rising spending pressures
Overall tax revenue amounts to about 18% of GDP, which is broadly in line with Southeast Asian peers but well below some other emerging market economies and the OECD average (Figure 1.16, Panel A). Tax revenue relies mainly on taxes on goods and services, which amount to around 8% of GDP, with income taxes amounting to 6% of GDP. The tax mix is similar to that in Southeast Asian peers, although the Philippines tends to rely to a greater extent on social contributions than Indonesia and Thailand. The authorities envisage a number of tax reforms that could raise revenue by 0.3-0.4% of GDP, with a new excise tax on sweetened beverages and junk food accounting for the bulk of the increase. However, meeting rising spending pressures, including from education, infrastructure, social programmes, and the climate transition, while maintaining prudent fiscal management requires further revenue mobilisation.
Note: Data for Chile and South Africa refers to 2022 and for Turkey refers to 2021. "Taxes on income" is taxes on income, profits & capital gains. “Others” includes property taxes, taxes on international trade, other taxes, grants and other revenues. “Social contributions” includes “Taxes on payroll and workforce”.
Source: UNU-WIDER Government Revenue Dataset, 2023 and 2025; IMF World Economic Outlook database: April 2023 and April 2025; OECD Revenue Statistics in Asia and the Pacific.
The efficiency of VAT could be enhanced
The Philippines exhibits one of the lowest VAT revenue collection ratios among Southeast Asian peers. While the standard VAT rate of 12% is above the one in Indonesia, Thailand and Viet Nam, the Philippines collects only about 45% of potential revenue (Figure 1.17). This compares unfavourably with regional peers – especially Thailand and Viet Nam, where the revenue ratio is about twice as high – suggesting significant scope for policy reform to enhance revenue mobilisation and system efficiency. Fully closing the gap between actual and potential revenue collection would yield additional VAT revenue of about 6½ percent of GDP. This would require reforms to limit zero-rating and exemptions, as well as strengthening compliance, with existing estimates suggesting broadly equal contributions from closing the policy gap and from closing the compliance gap (IMF, 2024a).
Reducing the VAT policy gap through base-broadening measures would likely be more growth-friendly than raising tax rates. A recent positive step is the imposition of VAT on digital services provided by non-resident platforms, which levels the playing field between foreign and domestic providers but will raise revenue by only about 0.1% of GDP. More substantial potential gains lie in rationalising widespread VAT exemptions. These include exemptions based on the characteristics of the buyer, such as those granted to senior citizens, persons with disabilities and cooperatives. The VAT registration threshold is set at about USD 50 000, providing businesses with turnover below this threshold with the option not to be part of the VAT system and pay a 3% tax on sales instead. These are often intended for further social objectives but are poorly targeted, regressive, and prone to abuse. VAT exemptions also apply to unprocessed food, private education, private healthcare services, financial services, domestic land and water passenger transport and real estate transactions. While some exemptions, including the ones on financial intermediation and real estate, are common internationally, others distort production chains, erode input tax credits, and complicate enforcement.
VAT revenue ratio, 2022, in % of potential revenue
Source: OECD (Revenue Statistics in Asia and the Pacific 2025; Consumption Tax Trends, 2025).
While precise revenue effects of rationalising VAT exemptions and zero-ratings are not readily available, the size of the VAT policy gap of around 3% of GDP suggests that gains could be significant. An initial review could focus on the VAT exemptions for senior citizens and for private education and private healthcare. In most cases, targeted social transfers would be more efficient in achieving distributional objectives than VAT exemptions. For instance, the VAT exemption for senior citizens benefits both low-income and high-income earners. Eliminating it while extending or raising social pensions (Chapter 3) would be more effective in reducing poverty and inequality. Empirical evidence indicates that these exemptions are poorly targeted, with much of the benefit captured by middle- and high-income households who consume more private services. A multi-country microsimulation study by Warwick et al. (2022) shows that VAT exemptions in health and education overwhelmingly benefit richer households in absolute terms, while Philippine-specific analyses suggest that VAT exemptions largely accrue to more affluent people as VAT liabilities – and thus the value of exemptions – increase with income (World Bank, 2016b). These exemptions could be replaced by targeted social transfers that deliver support more efficiently to low-income households. For example, the senior-citizen and healthcare exemptions could be substituted with a means-tested health stipend for poorer households, while the VAT exemption for private education could be replaced by grants for students from low-income households identified through the social registry.
The VAT threshold for self-employed workers appears high by OECD standards, amounting to more than 13 times GDP per capita as compared to just above GDP per capita in the average OECD country. This partly reflects constrained administrative capacity and an alternative sales tax of 3% for small businesses that are not part of the VAT system. However, the high VAT threshold may distort businesses’ supply chain sources and lead to cascading taxation, since VAT paid on inputs from VAT-registered businesses cannot be claimed. Reviewing the VAT threshold while allowing for simplified record keeping for small businesses would reduce these distortions.
Digitalisation and more timely VAT refunds are central to reduce the compliance gap. The Bureau of Internal Revenue’s (BIR) Digital Transformation Program should be accelerated to expand coverage, particularly over e-commerce. Investments in scalable, secure IT systems that improve taxpayer experience and enable real-time data collection are crucial. E-invoicing is currently under pilot implementation and e-filing, and e-registration already exist but need nation-wide implementation and system-wide integration, as foreseen by the current modernisation plan. Most importantly, the BIR should embed robust data analytics to detect and address underreporting using third-party data, including bank transactions, e-wallet payments and online platform sales. This frees up audit resources to target the most non-compliant taxpayers. Compliance could also be enhanced by strengthening trust in the system. Documentary requirements for refunds have been eased, but delays are a persistent weak point, discouraging formalisation and compliance. The Ease of Paying Taxes Act is a welcome reform, removing personal liability for BIR staff and adopting a risk-based approach to VAT refunds. These changes should streamline approvals and reduce incentives to reject legitimate claims. More broadly, a Compliance Risk Management (CRM) framework is essential. Tailoring enforcement by taxpayer type and reserving intensive audits for high-risk cases improves efficiency and fairness while boosting revenue.
Corporate tax incentives need to balance fiscal prudence and support for investment
The statutory corporate income tax rate of 25% is broadly in line with regional peers and the OECD average, but a broad range of tax incentives reduces the effective tax rate. A reduced tax rate of 20% applies to corporations with net taxable income below PHP 5 million (about USD 85 000) and total assets not exceeding PHP 100 million (about USD 1.7 million). Following a 2024 reform – the so-called CREATE MORE Act – businesses eligible for corporate tax incentives are offered three types of incentives. The Income Tax Holiday provides exemptions from corporate income tax for a fixed number of years; the Enhanced Deductions Regime encompasses enhanced deductions, including for labour, electricity and research and development expenditure; and the 5% Special Corporate Income Tax is levied on gross income instead of all national and local business taxes. New projects are generally entitled to 4 to 7 years of income tax holiday starting from the start of commercial operations, followed by 10-20 years of enhanced deduction or special corporate income tax. The Strategic Investment Priority Plan defines activities that are eligible for fiscal incentives in principle, with actual eligibility determined by Investment Promotion Agencies. Investment projects above approximately USD 250 million additionally require the endorsement of the national-level Fiscal Incentives Review Board.
Tax holidays based on corporate income risk granting generous, untargeted benefits that accrue to highly profitable firms without necessarily enhancing real economic activity. Although ex-ante evaluations by the Investment Promotion Agencies and the Fiscal Incentives Review Board provide for some degree of cost control, expenditure-based tax incentives such as accelerated depreciation, investment allowances, and R&D tax credits are generally viewed as being more effective in stimulating additional investment (IMF, OECD, UN and World Bank, 2024). OECD data suggest that countries increasingly favour expenditure-based measures, as these instruments foster incremental economic activity and innovation, reduce distortionary effects, and deliver clearer cost-benefit outcomes (OECD, 2022). These expenditure-based incentives directly reduce the cost of productive investment—machinery, innovation, employment — thereby raising marginal returns and creating a stronger link with economic activity. They exhibit fewer windfall gains and are less exposed to profit shifting under frameworks like BEPS Pillar Two, under which income-based tax relief might trigger top-up taxes.
To realign incentives with efficiency and fiscal discipline, the Philippines should gradually phase out corporate income tax holidays and pivot toward cost-based incentives. Recent reforms – the so-called CREATE and CREATE MORE laws – are positive steps in the direction of cost-based incentives, which would curb fiscal leakage while preserving international competitiveness. Authority to grant smaller-scale incentives can be delegated to Investment Promotion Agencies, acknowledging their nimble, investor-facing role. Performance contracts signed between Investment Promotion Agencies and investors are a positive step and should be rigorously monitored and enforced. An annual Tax Expenditure Report should detail foregone revenues, incentive beneficiaries, and economic outcomes, ensuring incentives generate measurable value for the foregone revenue. Such reporting would enable policymakers to calibrate incentive design, allow expiry of inefficient provisions, and maintain fiscal space (Box 1.5).
The authorities are advancing legislation to streamline the mining fiscal regime for large-scale operations, aiming to attract greater investment. At present, tax obligations vary significantly depending on the type of mining agreement, creating uncertainty and disincentivising new capital inflows. The proposed reform introduces a more uniform and progressive tax structure. Large-scale miners operating within mineral reservations would continue to pay a 5% royalty on gross output, while those outside would be subject to a five-tier, margin-based royalty ranging from 1% to 5%. In addition, a windfall profits tax – also structured in five tiers – would apply at rates between 1% and 10%, ensuring the government captures a larger share of profits during commodity booms. This gradual shift from purely output-based to profit-based taxation broadly aligns with international best practice, notably Chile’s reformed royalty regime, and marks a positive step toward greater fiscal equity. However, the effectiveness of the new regime in attracting investment will depend not only on the tax rates but also on the predictability of the fiscal environment. To bolster investor confidence, the government could consider offering guarantees of unchanged tax rules over the life of mining projects, similar to legal assurances in Chile against arbitrary changes in taxes. Without such provisions, the risk of future policy reversals could undermine the reform’s intended impact on long-term investment.
Tax expenditure reporting in the Philippines is narrow in scope and limited to investment-related incentives. Only fiscal incentives granted by Investment Promotion Agencies (IPAs) — such as income tax holidays, special corporate tax rates, duty exemptions, and VAT exemptions on imports — are reported. These are published in the annual budget. The report provides actual and projected revenues foregone, disaggregated by incentive type, sector, and IPA, for a rolling three-year window. However, this excludes most tax expenditures outside the IPA framework, such as VAT exemptions, personal income tax deductions, and sector-specific tax privileges (e.g. cooperatives). Although cost-benefit analysis is foreseen, no comprehensive, publicly released evaluations exist. In effect, the Philippines lacks a unified tax expenditure statement that reflects the total fiscal cost of tax privileges across all tax types and beneficiaries. Legislative efforts to broaden reporting — such as a Tax Expenditure Account in the national budget — have stalled, limiting transparency and policy scrutiny.
OECD best practice calls for comprehensive, transparent, and regular tax expenditure reporting that covers all major taxes (OECD, 2015). Best practice reports include annual tax expenditure statements alongside the national budget, reporting the fiscal cost of all significant tax exemptions, deductions, credits, and special rates. These reports also cover income taxes, consumption taxes (e.g. VAT), excise taxes, and other tax types, and often include multi-year historical data and forward projections. For example, Canada publishes a detailed report, disaggregating tax breaks by type, policy objective, and beneficiary, and supplementing the data with analytical chapters. Other countries such as Australia, France, and the Netherlands adopt similar practices, often using benchmark tax systems to define what counts as a tax expenditure. Some reports go further, incorporating cost-benefit analysis or evaluations of the efficiency and effectiveness of major tax breaks. Although systematic evaluation remains less common, the existence of detailed, standardised tax expenditure reports enhances fiscal transparency and enables informed debate about the trade-offs between spending and foregone revenue. These practices are in line with the OECD’s principle that all fiscal transfers — whether via direct spending or tax code — should be transparent, regularly reviewed, and subject to scrutiny for efficiency and equity.
Overhauling its tax expenditure reporting framework would allow the Philippines to align with OECD standards. This would require expanding coverage beyond investment incentives to include all significant tax expenditures across VAT, personal and corporate income tax, and excise taxes aligned with international standards (e.g., OECD, IMF) and encourage legislative oversight and public engagement. Expanded coverage should be complemented by the publication of a dedicated annual tax expenditure statement as part of the national budget process, consolidating and disaggregating all tax expenditures by type, sector, and beneficiary. Finally, cost-benefit analysis should be institutionalised and made public, starting with large tax expenditures under the CREATE MORE Act. Together, these reforms would support a shift toward a transparent, evidence-based fiscal policy that treats tax expenditures with the same scrutiny as direct spending.
The personal income tax base could be broadened
The personal income tax (PIT) base is narrow, as in many emerging market peers. The PIT take is around 3% of GDP and the top marginal rate amounts to 35%, which is comparable to Southeast Asian peers such as Thailand and Viet Nam. Taxable income encompasses compensation, self-employment/professional income, interest, rent, royalties, pensions, among other income. Realised capital gains and dividends are subject to flat rates. Self-employed workers with gross sales below the VAT threshold (about USD 50 000) may opt for an 8% flat tax on sales in lieu of both VAT and PIT. In 2023, the Bureau of Internal Revenues reported approximately 1.4 million annual PIT returns filed, which corresponds to about 3% of the employed population. Only those with taxable income above the basic allowance of about USD 4000 per year – similar to the average salary – actually pay personal income taxes, leaving most low‑ and middle‑income individuals untaxed under the PIT. The current level of the basic allowance in the Philippines is high relative to OECD economies, but it is similar to many emerging market economies, which often find it more difficult to raise revenues from personal income taxes than advanced economies (Figure 1.18). While there may be scope for reducing the basic allowance in the medium term and expanding the personal income tax base, its level may for now be striking a reasonable balance between revenue considerations and maintaining low taxes on formal labour (Chapter 3). Notably, several countries in Latin America have basic allowances that exceed median or even average wages, in some cases substantially. At the same time, the low number of income tax filers suggests that there is scope to step up enforcement.
Income threshold where single taxpayers start paying income tax
Note: Data refer to the year 2023 for the Philippines (calculations are based on an average annual salaries and wages of 242 718 Philippine pesos; the threshold to start paying personal income taxes is 250 000 Philippine pesos annually), to the year 2024 for Peru (calculations are based on a monthly average labour income PEN 1,765.9 at national level in 2024; the threshold to start paying personal income taxes is PEN 37,450 annually), to the year 2024 for Argentina (calculations are based on an average wage of 1 610 000 ARS and a minimum taxable income of 1 800 000 ARS), to the year 2020 for Brazil, and to the year 2022 for other countries.
Source: OECD Expanding social protection and addressing informality in Latin America, national authorities of Argentina and the Philippines.
The Philippine personal income tax framework would benefit from reforms across three dimensions: base broadening, progressivity, and administrative efficiency. Broadening the base requires the elimination of preferential exemptions – for example, on bonuses and in-kind emoluments – and greater taxation of capital income by unifying rates across dividends and capital gains. The recent Capital Markets Efficiency Promotion Act (CMEPA) supports these goals by rationalising multiple passive income and financial intermediary taxes. Enhancing progressivity calls for replacing the current deduction-based structure with a tax‑credit method, ensuring uniform valuation of the zero-rate band across all taxpayers (IMF, 2022). Continuing administrative improvements under the Ease of Paying Taxes Act and the Bureau of Internal Revenue’s Digital Transformation Program, enable “file-and-pay anywhere”, and expand remote digital filing would further strengthen voluntary compliance, by reducing compliance costs and improve overall PIT revenue performance.
Property taxes
Recurrent taxes on immovable property in the Philippines generate roughly 2% of total tax revenue, broadly in line with the OECD average. These taxes are a primary source of revenue for subnational governments (provinces, cities and municipalities), accounting for 37% of subnational government tax revenue in 2020 (OECD/ADB, 2023). They play a crucial role in enabling the financing of public service provision at the local level. Taxes on immovable property are levied by subnational governments based on the assessed market value of real property, adjusted by an assessment level coefficient that varies between 0.1 and 0.8 depending on location and property use. Tax rates are capped at 1% for properties in provinces and 2% for those in cities and municipalities within Metro Manila. However, fragmented and outdated valuation practices across local government units (LGUs) have long undermined efficiency and resulted in properties with similar market values facing different tax burdens depending on the jurisdiction. To address this, a 2024 reform introduces a uniform schedule of market values (SMV) to standardise property assessments nationwide. This reform aims to eliminate wide discrepancies in valuation methods across local government units, which have affected subnational revenue performance by underassessment in some areas and inflated liabilities in others. Effective implementation hinges on rigorous oversight, with the Department of Finance certifying only those LGU schedules that fully comply with the national SMV. Apart from enhancing equal treatment, this would reduce opportunities for political interference and rent-seeking in local assessments, increase local revenue mobilisation by expanding the tax base, and support more efficient inter-jurisdictional competition.
1.4.3. Reforming public expenditures
The size and composition of expenditure is similar to regional peers, but efficiency could be enhanced
Public spending in the Philippines, at around 25% of GDP, is somewhat above the regional average but remains well below the OECD average of around 40% (Figure 1.19). Education expenditure is about 3½ of GDP, which is high relative to regional peers, while social protection spending (including pensions, health and other transfers) is low at about 5% of GDP. Public pension spending is around 1.4% of GDP and expected to rise only modestly by 2040 (ILO, 2025; World Bank, 2016). Public investment in infrastructure is also relatively high, reaching 5.8% of GDP in 2024. Despite robust spending, outcomes across a range of areas, such as education, public health, poverty and infrastructure remain below those of regional peers (Chapters 2 and 3). Enhancing the efficiency of spending is key to improve outcomes while containing the expenditure-to-GDP ratio amid continued spending pressures from infrastructure, education and social programmes.
General government spending, % of GDP, 2023 or latest year available
Note: ASEAN-3 refers to Indonesia, Thailand and Viet Nam. For total expenditure and expenditure on education, the data is from 2023 or latest year available except for PHL (2024).
Source: IMF World Economic Outlook Database, World Bank WDI, ILO World Social Protection Data Dashboards.
There is significant scope for efficiency enhancements in social spending, including by reducing price subsidies, redirecting the savings into targeted cash transfers, and improving targeting. Overall, dozens of programmes operating across multiple agencies with overlapping mandates contribute to fragmentation and reduce spending efficiency. Consolidating small programmes and price subsidies into centralised, needs-based cash transfers managed by the Department of Social Welfare and Development would help address these inefficiencies. Transparency and independent monitoring of social spending could be enhanced by mandating the periodic publication of coverage metrics and establishing an external audit body to evaluate administrative and targeting performance. A recent study suggests that a substantial share of households in the lowest-income quintile are not covered by the 4Ps conditional cash transfer programme (Albert et al., 2024), partly due to the infrequent updating of the proxy means test-based social registry (the so-called Listahanan). The ongoing transition to the Community-Based Monitoring System (CBMS), a household survey managed by the Philippine Statistics Authority, is a positive step toward more frequent updates. A key issue will be to ensure the truthfulness of self-reported data through community validation at the municipal level and by linking of the CBMS with administrative databases such as the national ID system (PhilSys), tax, social security and property records.
The envisaged public administration reform and an overhaul of the pension system for military and uniformed personnel (MUP) would further enhance public spending efficiency. The public administration reform, also known as the “Government Optimisation Programme” and currently pending presidential approval, seeks to improve public spending efficiency by reducing overhead expenses and eliminating redundant offices and functions. Key MUP reforms currently under review in Congress include introducing a mandatory contribution scheme for active personnel based on their pay; an increase in the retirement age; as well as the suppression of the automatic indexation of pensions to current salaries of active MUP. The public administration reform and the envisaged reform of the pension system for MUP are positive steps to enhance the efficiency of spending and bolstering long-term fiscal sustainability but would only yield limited savings in the short term. For instance, the envisaged MUP pension reform would yield savings of less than 0.05% of GDP in the short term. While these reforms are positive steps to enhance spending efficiency, gradually making spending reviews and the quest for better spending efficiency an integral part of the budget process would help to identify room for savings while maintaining public service quality (Box 1.6).
Denmark illustrates a spending-review system that is fully integrated with the budget process that has operated effectively since the 1980s (Danish Ministry of Finance, 2024). The Ministry of Finance leads annual spending reviews as a routine component of budget preparation, with each cycle beginning when the Ministry and an inter-ministerial Economic Coordination Committee establish review priorities early in the year. Cross-cutting steering and working groups, typically chaired by senior Ministry of Finance officials alongside line-ministry counterparts, conduct comprehensive analyses of selected topics. These reviews, sometimes supported by external consultants, operate on tight timelines to ensure findings are available by May for June budget negotiations. The results are systematically incorporated into budgets, with recommended savings locked into the following year's budget and three-year forward estimates.
The Danish system is firmly anchored in annual budget processes through accepted practice rather than comprehensive legislation. The Ministry of Finance maintains central coordination throughout all stages, while an Economic Coordination Committee comprising senior ministers and officials defines scope, objectives, target savings, and implementation timelines. Joint steering groups of senior officials from the Ministry of Finance and involved ministries provide governance oversight, supported by working groups of subject-matter experts who conduct detailed analysis. The reviews target both efficiency gains and expenditure reprioritisation through detailed baseline establishment and cost-effectiveness analysis. Reviews focus on broad spending categories such as personnel costs, information technology, and procurement, or specific policy areas including justice and infrastructure where savings opportunities exist.
Several critical factors underpin the effectiveness of Denmark's spending-review system. High-level political commitment ensures reviews carry significant weight, with minister involvement and Economic Coordination Committee oversight from initiation through parliamentary approval of enabling legislation. The consensus-driven political environment reinforces this commitment through negotiated budget agreements requiring parliamentary approval of proposed savings. Integration with budget cycles represents another success driver, as reviews operate as institutionalised annual processes rather than one-off audits, with recommendations prepared for each budget round and incorporated into medium-term expenditure planning. Strong analytical quality and clear governance structures support sustained effectiveness, including dedicated Ministry of Finance staff, codified processes, clear terms of reference, and mixed technical teams that build analytical trust and maintain focus on value-for-money outcomes.
Local government spending needs to become more efficient
Fiscal transfers to Local Government Units (LGUs) – provinces, cities, municipalities and so-called barangays (the lowest government level) – account for around 17% of total national government spending. The 1991 Local Government Code transferred key service delivery responsibilities to LGUs —including health, education, agriculture, social welfare —but largely retained centralised taxing power, with LGUs relying almost entirely on the Internal Revenue Allotment that is based on population and land area. Central government resources transferred to LGUs were further expanded by a Supreme Court ruling of 2018, which mandated that LGU’s share of national taxes be based on all national taxes, including import duties and taxes, rather than solely on internal revenue taxes. In order for LGUs to spend the increased resources efficiently, a refined assignment of functions across government levels is needed to avoid overlap, duplication and inefficiency. For instance, currently school buildings are devolved in law but built mostly by the national government authorities, while health services are fragmented across municipal and provincial governments. The aim should be to allow for decentralised decision-making and funding where local administrative capacity exists, while reserving strategic or cross-jurisdictional functions for central control. In Germany, for instance, municipalities and states (Länder) are responsible for around 90% of school funding, with municipalities covering buildings and maintenance; states handling teacher payment and pedagogical quality; and the federal government stepping in for national policy priorities — like digitalisation, research excellence, or innovation programs (OECD, 2020). This reallocation aligns spending, capacity, and accountability, ensuring resources follow responsibility.
Budgeting, procurement, and reporting practices vary widely across LGUs. Although tools like the Department of Budget and Management’s Operations Manual and the Public Financial Management Assessment Tool are available, their application remains uneven. Some cities, such as Manila, have adopted digital platforms like GO Manila to enhance transparency in permitting and budgeting, while others continue to operate without integrated systems. Moving toward a unified financial management information system could help harmonise transaction recording, procurement, and reporting—enhancing comparability and auditability across jurisdictions. Linking such systems to LGU access to borrowing or additional grants may encourage adoption. For example, Cebu City has introduced a project prioritisation framework aligned with national development plans, contributing to stronger budget discipline. Standardising public financial management tools and linking them to procurement or financing processes may create incentives for wider compliance. Publishing core metrics — such as procurement cycle times, budget variance, and audit outcomes — could also promote accountability and strengthen public trust (OECD/ADB, 2023).
Capacity disparities among LGUs remain significant. While some metropolitan areas exhibit strong technical capabilities, many smaller municipalities operate with limited access to qualified budget staff, engineers, or procurement officers — affecting the quality of project design and implementation. OECD research highlights that decentralisation tends to be more effective when local capacity is adequately developed (OECD, 2020). One possible approach involves establishing regional Public Financial Management academies to provide structured training and professional development. Certification for key roles could help promote a consistent baseline of competency, while peer mentoring and targeted advisory support might assist lower-capacity LGUs in strengthening institutional functions. Co-financed salary supplements may also attract and retain skilled personnel where local budgets are constrained. Building local human capital in this way could enhance the effectiveness of devolved functions and reduce the risk of administrative underperformance.
Oversight of LGU spending in the Philippines is largely retrospective and focused on procedural compliance, with limited attention to service outcomes or efficiency. Since the current resource allocation formula relies solely on population and land area — with no adjustment for performance — LGUs have few incentives to improve results or innovate. International experience points to the value of outcome-based monitoring and performance-linked grants (OECD, 2020). For example, India’s Urban Performance Grants are tied to metrics such as expanded water access or improved waste management. Introducing a national fiscal monitoring platform that tracks key indicators — such as school completion rates, clinic utilisation, and infrastructure delivery — could support more evidence-based decision-making. Linking a portion of national government transfers to performance may also help align incentives. A shift toward real-time fiscal monitoring, public dashboards, strategic oversight, and peer learning could strengthen both accountability and service delivery under decentralisation, fostering inclusion and growth while respecting local autonomy.
Executing rising public investment efficiently
The Philippines grapples with substantial infrastructure gaps across various critical areas, which impede its economic potential and contribute to issues like the high cost of electricity and logistics. Key areas requiring significant investment include energy infrastructure, particularly to address transmission grid issues and reduce power costs, and transportation and logistics, with a focus on improving roads, ports, and implementing rail programmes. Digital infrastructure also needs upgrading to support the emerging digital economy, alongside vital investments in social infrastructure such as healthcare and education facilities. To tackle these challenges, the government is implementing its "Build-Better-More" Programme, aiming to boost public infrastructure spending from 5.8% of GDP to 6.2% by 2028. This ambitious programme prioritises high-impact, sustainable, and climate-resilient projects, leveraging domestic funds, official development assistance, and public-private partnerships, with the full implementation of the PPP Code expected to drive greater private sector involvement in development efforts. While the authorities’ emphasis on maintaining high levels of public investment appears appropriate to boost productivity and living standards, upgrading public investment frameworks would boost public investment efficiency.
Infrastructure projects are often undermined by the absence of systematic cost–benefit analysis and shortcomings in project preparation and execution. Delays and cost overruns frequently stem from weak planning and budgeting capacities, inadequate coordination across levels of government, limited monitoring during implementation, and unresolved land acquisition or resettlement issues. A recent study on road projects found that design flaws, underestimation of costs, and poor oversight were recurrent drivers of inefficiency (Layno and Famadico, 2025). By contrast, in many OECD countries, large-scale investments are subject to ex-ante evaluation processes that cover financial, technical, environmental, and social risks, and are independently reviewed. Appraisal results are commonly embedded in multi-year budget frameworks to strengthen fiscal discipline and align projects with strategic priorities. Establishing a more rigorous evaluation system that fully accounts for lifecycle costs, governance risks, and institutional capacity constraints could improve both efficiency and resilience of public investments. The Department of Economy, Planning and Development (DEPDev) could play a central role by setting binding quality standards for project appraisals, verifying that critical pre-implementation issues such as right-of-way acquisition are resolved, and ensuring that local governments have the technical support to carry out projects effectively. High-value investments could also benefit from independent peer review and closer links between investment programming and multi-year funding commitments.
Philippine public–private partnerships have demonstrated mixed results. Successful cases like the Mactan–Cebu Airport and Tarlac–Pangasinan–La Union Expressway show how PPPs can accelerate delivery, bring innovation, and leverage private funding. But PPP projects can entail hidden risks, exposing the government to contingent liabilities. Many OECD countries, including Australia and the United Kingdom — use PPPs selectively where thorough value-for-money analysis shows benefits over traditional public delivery. Contracts in these systems clearly allocate risks related to construction, demand, and maintenance; stipulate transparent revenue mechanisms; and emerge from rigorous competitive processes. The recent update of the PPP code sets up a unified legal framework for public–private partnerships, creating a more stable and predictable environment for partnerships between the public and private sectors. But continued efforts are needed to ensure that project selection is based on rigorous cost-benefit analysis; monitoring and oversight of ongoing projects is strictly enforced; and fiscal risks are managed, including by strengthening the institutional capacity of relevant government entities for robust value-for-money analysis and PPP contract management.
The New Procurement Act has reformed bidding with mandatory market assessments, electronic platforms, video recording for major contracts, and criteria incorporating lifecycle costs and sustainability. This aligns with international best practice that seeks competitive, transparent procurement focused on total cost and performance. However, implementation remains weak in many local governments, which often default to direct contracting or attract few bidders due to limited capacity. This could be addressed by scaling up training for procurement officers nationwide, mandate pre-tender market analyses, enforce rules requiring multiple bids, and implement lifecycle-cost evaluation tools systematically. Strengthening local procurement capabilities will improve competition between providers, thereby reducing costs over project lifespans and reducing corruption risks (Chapter 2).
The policy recommendations in this Survey imply a fiscal consolidation of 1.4% of GDP, aligned with the medium-term fiscal programme’s objective of reducing the fiscal deficit to 4.3% of GDP by 2028. Revenue-enhancing measures focus on improving the efficiency of VAT collection, streamlining corporate tax incentives, and introducing an emissions trading system. On the expenditure side, savings would stem from reducing inefficiencies in local government spending and strengthening project appraisal in infrastructure investment. While these measures contribute to deficit reduction, their impact is partially offset by higher social spending, particularly to expand social protection.
Note: The estimates in the table are based on a variety of sources and OECD calculations. The total fiscal impact of the measures matches the fiscal consolidation required to reach the deficit target of -4.3% of GDP in the medium-term fiscal plan by 2028.
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