The Senate Economic Planning Office (SEPO) has called for stronger structural reforms to protect fiscal sustainability, boost productivity, and improve governance as the government prepares the 2026 budget.
The recommendations were presented during the 11th Socioeconomic Research Portal for the Philippines (SERP-P) Knowledge-Sharing Forum, organized by the òòò½´«Ã½ (òòò½´«Ã½), where SEPO Legislative Staff Officer Brian Benson See outlined policy measures to strengthen the economy’s capacity to withstand shocks and support long-term growth.
See said reform efforts should focus on reinforcing the country’s growth foundations, improving governance, and safeguarding fiscal sustainability to ensure that budget goals remain realistic and achievable.
“The path forward demands policy choices that prioritize long-term resilience, economic diversification, and fundamental improvements in governance,” See said.
Fiscal conditions underscore need for reform
See explained that the urgency of reforms is underscored by tightening fiscal conditions that limit the government’s flexibility in allocating resources.
“This is driven by weaker revenues combined with higher disbursements. The total $6.7 trillion budget for 2026 is constrained now by tightening fiscal space. Mandatory spending now accounts for 57.7%,” he said.
In 2024, government revenues reached a record 16.7% of GDP, partly due to one-time income sources such as excess funds from government-owned and -controlled corporations (GOCCs). However, these sources are no longer available.
As economic growth slowed in 2025, revenue growth also weakened. This led the government to lower its 2026 revenue target to 16.2% of GDP.
At the same time, a growing share of the budget is locked into fixed obligations, including salaries, pensions, and debt service.
Debt servicing alone is expected to reach about PHP 950 billion, or nearly 14% of total spending.
As a result, allocations for infrastructure, transport, and other growth-enhancing investments face increasing pressure, raising concerns about long-term growth prospects and disaster preparedness.
Strengthening growth foundations
Against this constrained fiscal backdrop, SEPO emphasized the need to strengthen the economy’s productive base to support sustainable growth.
Among SEPO’s key recommendations is the need to modernize agriculture to stabilize food prices and improve productivity, alongside the implementation of a coherent industrial policy to strengthen manufacturing and reduce overreliance on the services sector.
See noted that while the Philippine economy continues to grow, its structure remains vulnerable to external shocks due to weak domestic production and limited value addition.
“The economy currently rests on relatively stable fundamentals. Gross Domestic Product (GDP) growth is steady, inflation is easing, and unemployment rates are lower,” See said.
However, he cautioned that maintaining growth will require addressing long-standing structural constraints, including low productivity, uneven regional development, and governance challenges.
Governance and risk management
SEPO also emphasized the importance of reinforcing governance to ensure that public spending translates into tangible development outcomes.
This included strengthening institutional oversight and accelerating the adoption of digital procurement and monitoring systems to curb inefficiencies.
Managing price and supply risks was likewise identified as a priority, with See underscoring the need to “build buffer stocks for food and expand energy reserves as non-negotiable strategies for insulating the domestic economy from global shocks.”
2026 Budget Assumptions “credible but fragile”
See stressed that while the macroeconomic assumptions underpinning the 2026 budget are broadly reasonable, they remain vulnerable to downside risks.
“The assumptions for the 2026 budget are credible but fragile,” he said, citing global economic uncertainty, inflation risks from supply shocks, and exposure to external developments such as oil price volatility and movements in the exchange rate.
He noted that the budget’s exchange rate and inflation assumptions could be quickly affected by geopolitical tensions and domestic supply constraints, underscoring the importance of prudent fiscal management.
To enhance fiscal sustainability, SEPO recommended strengthening tax administration and prudently managing the country’s rising debt, including prioritizing peso-denominated issuances where feasible.
During the forum discussion, the need for stronger structural reforms was emphasized to ensure fiscal sustainability while maintaining realistic budget targets.
Watch the forum recording here: or read the SEPO’s study here: .
