World Bank urges PH to boost fiscal reforms
The Philippines could generate fiscal gains equivalent to 3.6 percent to 7.1 percent of gross domestic product (GDP) by broadening the tax base, improving tax collection and making public spending more efficient and equitable, the World Bank Group said.
In a report released on Monday, the Washington-based institution identified three areas of public finance that the government could reform to unlock those gains.
The government could save as much as P435 billion a year just by consolidating procurement and reducing fragmented purchases that leave agencies exposed to seasonal price swings, the World Bank said.
Simplifying tax payments, streamlining corporate income tax incentives and limiting unprogrammed appropriations to 5 percent of the national budget are also seen to generate additional savings.
Taken together, reforms to make better use of existing fiscal resources could generate savings equivalent to 2.2 percent to 4.4 percent of GDP, the World Bank said.
Closing the gaps
The government could also close fiscal gaps without raising tax rates by expanding e-invoicing and audits, as well as rationalizing value-added tax exemptions, the bank said. Better-targeted social programs, including expanded cash transfers for poor and vulnerable households, could further reduce the cost of government support by directing benefits to those who need them most.
Closing these gaps and loopholes could generate additional savings equivalent to 1.4 percent to 3.1 percent of GDP, the World Bank said.
Finally, redirecting government spending toward human capital development could lift about 2 million Filipinos out of poverty, according to the bank. Better-targeted spending could deliver better outcomes—like reducing wealth inequality—without requiring a larger budget.
“Earlier this year, the Philippines crossed into upper-middle income status,” said Zafer Mustafaoğlu, the bank’s division director for the Philippines. “The potential fiscal gains—hundreds of billions of pesos already within the system’s reach—can fuel the next chapter of that journey.”
Budget shortfalls
Latest data from the Bureau of the Treasury showed the fiscal gap had swelled 90.23 percent to P161.3 billion in August from the P84.8-billion shortfall in the same month the previous year.
This pushed the year-to-date shortfall to P1.05 trillion, or about 63 percent of the P1.658-trillion full-year ceiling of the Marcos administration.
The 2026 deficit target is equivalent to 5.4 percent of GDP.
The World Bank said its report serves as core diagnostic instruments to assess the efficiency and effectiveness of a country’s fiscal policies.
On the revenue side, the bank said government collection stood at 14.4 percent of GDP in 2024, lower than the average for lower middle income countries and more than 6 percentage points below the average for upper-middle income nations.
Meanwhile, state spending has grown faster than revenue and GDP over the last few decades.
“Taken together, a narrow revenue base and weakly-tracked expenditure channels create a fiscal system that amplifies downturns rather than cushioning them,” the bank said. “A structurally stronger fiscal system would let automatic stabilizers do more of this work, reducing the need for discretionary responses when downturns hit.”
