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THE PHILIPPINES needs a stronger revenue base and a more disciplined system for turning every public peso into better services, stronger human capital, and productive investment.

The Philippines has entered a stage of development in which the quality of public finance will increasingly determine the quality of economic growth.

The country needs better schools, stronger health systems, more reliable infrastructure, improved transport, greater energy security, stronger climate resilience, and better opportunities outside the major urban centers. These requirements cannot be met simply by announcing larger budgets. They require the government to mobilize sufficient resources, use those resources efficiently and direct them toward areas that generate the greatest social and economic returns.

This makes the current discussion about fiscal policy particularly important.

Two major assessments released within days of each other point in broadly complementary directions. The International Monetary Fund’s 2026 Article IV Consultation, released on September 25, 2026, called for the Philippines’ medium-term fiscal adjustment to place greater emphasis on revenue mobilization while protecting priority social spending and creating room for productive public investment. It also stressed the need for reforms in procurement, project appraisal, project selection, and budget execution.

Three days later, on September 28, 2026, the World Bank released its Public Finance Review, Building on Reform: Public Finance for a Rising Philippines. It identified substantial potential fiscal gains from both stronger revenue collection and more efficient public spending.

The message is clear: the Philippines needs to mobilize more, but it also needs to spend better.

Fiscal capacity matters

The government’s latest medium-term fiscal program, as reported by the Development Budget Coordination Committee in its 2026 review, projects national government revenues of P4.807 trillion, or 15.8% of GDP, in 2026. Disbursements are projected at P6.466 trillion, or 21.2% of GDP, leaving a fiscal deficit of 5.4% of GDP. The government aims to bring the deficit down gradually to 3.5% of GDP by 2030.

That is important for fiscal credibility and debt sustainability. But fiscal consolidation cannot simply mean reducing expenditure.

For a developing economy, the composition of adjustment matters as much as its size.

Cutting productive investment, education, health or well-targeted social protection can weaken future growth while improving a short-term fiscal indicator. Conversely, mobilizing additional revenue and eliminating inefficient expenditure can create fiscal space without sacrificing development priorities.

That is why the debate should move beyond the simple question of whether government is spending too much.

The more useful questions are: Is the government collecting enough? Is it collecting fairly? Is it spending efficiently? And is each peso directed toward the country’s most important development needs?

The revenue side cannot be neglected

A country with ambitious development objectives needs adequate fiscal capacity.

The Philippines cannot depend indefinitely on a relatively narrow revenue base while expecting government to finance increasingly demanding responsibilities. Stronger revenue mobilization therefore has to be part of the development strategy.

The IMF’s September 25 Article IV assessment identified several possible areas: broadening the VAT base, strengthening excise taxation on luxury goods and goods detrimental to health or the environment, and improving the governance and design of tax incentives. It also emphasized stronger tax administration and advised against relying on tax amnesties as a substitute for durable revenue reform.

This does not mean simply increasing tax rates.

A better approach is to improve compliance, reduce unnecessary exemptions, modernize tax administration and ensure that businesses operating in comparable circumstances face broadly comparable obligations.

Digitalization can play an important role. Electronic invoicing, better data matching and stronger audit systems can make it harder for economic activity to remain outside the tax net while reducing unnecessary burdens on compliant taxpayers.

Tax incentives also deserve continuous scrutiny.

An incentive can be justified when it generates investment, employment, technology transfer or other measurable benefits that would not otherwise occur. But an incentive that continues automatically without demonstrating a meaningful public benefit becomes a permanent claim on fiscal resources.

The objective should therefore be more effective revenue mobilization, not indiscriminate taxation.

But more revenue alone will not solve the problem

This is the other half of the fiscal equation.

Every additional peso collected from citizens and businesses creates an obligation to demonstrate that it is being used responsibly.

The World Bank’s September 28, 2026 Public Finance Review estimates that comprehensive reforms could potentially generate combined additional revenue and savings equivalent to 3.6% to 7.1% of GDP annually. These are potential gains, not guaranteed budgetary savings, but their scale illustrates how much fiscal capacity may be available through better systems rather than simply higher taxes.

The World Bank identifies three broad areas for reform: increasing fiscal space through measures such as consolidated procurement and easier tax payments; closing fiscal gaps through measures such as expanded e-invoicing and audits and rationalization of VAT exemptions; and improving the targeting of health, education and social-protection spending.

Procurement is one important example.

The World Bank estimates that procurement reform alone could potentially save up to P435 billion annually. This does not mean P435 billion can automatically be added to the government’s available cash. It means that improving procurement processes, competition and purchasing efficiency could reduce the cost of obtaining the same goods and services.

That distinction matters.

Public financial management is not an abstract bureaucratic exercise. If a government can build a school for less without compromising quality, more classrooms can be built. If medicines can be procured more efficiently, more patients can be served. If infrastructure projects are selected according to economic and social returns rather than administrative convenience, scarce capital can generate greater benefits.

Efficiency is therefore itself a form of fiscal capacity.

The question is where the money goes

The Philippines’ development challenge is not merely to increase the size of the public budget. It is to improve the allocation of that budget.

Education is an obvious example.

The national budget provides substantial resources for education. But the ultimate measure of success cannot be the amount appropriated. It has to include whether children are actually learning, whether classrooms are delivered on time, whether teachers receive the support they need and whether disadvantaged communities receive adequate resources.

The same principle applies to health.

Higher health allocations matter, but so do access, targeting, procurement, preventive care and the ability to reach families before illness becomes financially devastating.

Social protection requires similar discipline. A program that reaches the wrong households, overlaps with another program or imposes high administrative costs can consume resources without achieving its intended objective.

The World Bank’s September 28 report argues that better targeting of health, education and social-protection programs could improve outcomes without necessarily requiring larger budgets. It estimates that a common social-program registry could potentially lift about 2 million Filipinos out of poverty, while stronger foundational learning and streamlined medical assistance could improve education and reduce health costs.

This is the essence of outcome-based public spending.

Public investment needs special attention

There is another reason the quality of expenditure matters now.

The Philippine Statistics Authority, in data released on August 7, 2026, reported that GDP grew by only 2.3% year-on-year in the second quarter of 2026. Gross capital formation fell 9.2%, while industry contracted 2.4%. Household consumption grew 2.8% and government consumption grew 8.3%.

The IMF’s September 25 assessment subsequently identified a sharp fall in public construction investment following stricter infrastructure project reviews as one factor behind the second-quarter slowdown, alongside weaker confidence and natural disasters.

There is an important lesson here.

Better scrutiny of infrastructure projects is necessary. But scrutiny should not become prolonged administrative delay.

A development project has value only when it moves from the budget to implementation. Roads, bridges, schools, hospitals, water systems and power infrastructure do not generate economic benefits while sitting in procurement or approval processes.

The objective, therefore, should not be to spend faster at any cost. It should be to select better projects, approve them efficiently, procure them competitively and implement them on time.

That requires stronger project appraisal, better procurement systems and clearer accountability for delays.

Fiscal reform should protect the future

The Philippines also faces pressures that cannot be postponed.

Climate-related disasters are becoming a recurring economic concern. Energy costs can be affected by geopolitical shocks. The country needs investment in resilient infrastructure, reliable electricity, and human capital. At the same time, demographic changes will eventually increase demands on health and social protection.

Fiscal policy must therefore look beyond the next budget year.

The IMF’s September 25, 2026 recommendation is particularly relevant: fiscal consolidation should be anchored in concrete revenue and expenditure measures while protecting priority social spending and creating room for higher-quality public investment.

This suggests a different way of thinking about fiscal discipline.

Fiscal discipline should not mean less government.

It should mean better government for every peso collected and spent.

Five priorities for a stronger fiscal system

The Philippines could therefore focus on five mutually reinforcing priorities.

First, broaden the revenue base. Improve compliance, modernize tax administration, review exemptions and incentives, and strengthen digital collection systems.

Second, make procurement more competitive and transparent. Consolidated purchasing, better competition, and digital procurement can reduce costs while improving accountability.

Third, shift from expenditure monitoring to outcome monitoring. Ministries and agencies should be judged not only on whether they spent their allocations, but on what those allocations achieved.

Fourth, strengthen project appraisal and execution. Infrastructure projects should be prioritized according to economic, social and environmental returns, with clear timelines and accountability for implementation.

Fifth, protect high-return human and physical investment. Education, health, social protection, climate resilience, energy and productive infrastructure should be protected even as less effective expenditure is reviewed.

These reforms should reinforce one another.

Better tax administration generates more resources. Better procurement reduces the cost of government. Better project selection improves the return on public investment. Better targeting improves the impact of social programs. Better budget execution converts allocations into actual services.

Together, they create fiscal space.

Every peso should deliver more

The Philippines’ fiscal challenge should not be reduced to a debate between higher taxes and lower spending.

That is too narrow for the country’s development needs.

The real objective is to build a state with enough fiscal capacity to finance development priorities and enough institutional capacity to use those resources well.

The IMF’s September 25, 2026 Article IV assessment and the World Bank’s September 28, 2026 Public Finance Review arrive at an important moment. The Philippines is seeking to sustain growth while gradually reducing its fiscal deficit. At the same time, the country faces demands for better education, health, infrastructure, social protection and climate resilience.

The answer cannot be simply to spend more.

Nor can it be simply to spend less.

The more durable answer is to mobilize more revenue, eliminate waste, improve efficiency, and allocate public resources where they can produce the greatest long-term benefit.

For ordinary Filipinos, this ultimately comes down to a very simple question.

When the government collects one peso, how much development does that peso deliver?

The success of fiscal reform should increasingly be measured by the answer.