OECD keeps 5.1% PH GDP growth forecast for ’26
The Organization for Economic Co-operation and Development (OECD) has retained its 5.1 percent growth forecast for the Philippines for 2026, adding that the country’s recovery will hinge on maintaining prudent fiscal policy through stronger tax revenue mobilization and improved public investment.
The Paris-based organization’s first Economic Survey of the Philippines also showed that it kept its 5.8 percent growth forecast for 2027.
These projections, previously below the government’s targets, are now within the revised growth range set by the Development Budget Coordination Committee.
“Economic activity is set to pick up gradually as inflation remains low and financial conditions ease. As growth returns to trend, fiscal policy should remain prudent to prepare for future shocks and rising expenditure pressures, including from infrastructure investment, social protection and the climate transition,” the Paris-based forum said. James Villafuerte, regional lead economist of the Asian Development Bank, meanwhile, said the bank expects the Philippine economy to grow by a faster 5.3 percent this year, supported by strong domestic demand, rising exports of electronics and semiconductors and a resilient services sector.
Strong fundamentals
“Despite the drag from domestic and external shocks, I think the macroeconomic fundamentals of the country are quite strong,” Villafuerte said at a joint economic briefing of foreign business chambers on Thursday.
For the OECD, it said the Philippines would need to grow by an average of 6 percent annually over the next decade to achieve high-income country status by 2040.
But to sustain such a strong momentum, the Marcos administration would have to mobilize revenues more efficiently to put the Philippines into a more prudent fiscal path while also leveraging investments in infrastructure, education and social protection.
”Stepping up the pace of fiscal consolidation in 2026, while maintaining infrastructure investment of around 5 percent of GDP (gross domestic product), would allow to maintain growth momentum, rebuild fiscal room to address possible future shocks and help bring debt on a more prudent path,” the OECD said.
The national government’s outstanding debt reached a record P17.71 trillion at end-2025, bringing the debt-to-GDP ratio to 63.2 percent. This remains above the 60-percent benchmark often cited as a threshold for fiscal sustainability and has stayed elevated since the pandemic-driven surge beginning in 2020.
High debt levels could put pressure on the budget and limit the fiscal space, potentially crowding out productive spending over time. To keep it manageable, the OECD said the country should shift toward better revenue measures.
To support public spending and investment, which in turn underpin long-term economic growth, the OECD said further revenue mobilization was needed.
Tax revenues in the country make up roughly 18 percent of GDP, which is well below the OECD average of above 40 percent. Reforms on tax collections, the OECD said, could potentially raise revenues by 0.3 to 0.4 percent of GDP.
For instance, the Philippines has one of the lowest value-added tax (VAT) collection efficiency rates in the region, capturing only about 45 percent of potential VAT revenues despite imposing a 12 percent VAT rate—the highest in Southeast Asia.
The OECD suggested that VAT reforms could include limiting zero-rating provisions, narrowing exemptions and strengthening enforcement to close both policy and compliance gaps. Rather than increasing the VAT rate, broadening the tax base would likely be more growth-friendly while boosting collections.
Beyond VAT, the report also flagged corporate income tax incentives, such as income tax holidays, which may not necessarily generate additional economic activity. The OECD instead recommended shifting toward cost-based incentives that are generally more transparent and better targeted. —WITH A REPORT FROM LOGAN KAL-EL M. ZAPANTA
