The International Monetary Fund (IMF) has cautioned that the Philippines' elevated public debt is severely limiting the government's capacity to address the ongoing energy crisis effectively. With fiscal buffers depleted, officials are being urged to adopt a targeted approach to support the most vulnerable populations.
Krishna Srinivasan, director of the IMF's Asia and Pacific Department, emphasized the constrained fiscal space during a recent press conference. Public sector debt has surged to approximately 60% of GDP, up from 41.5% before the COVID-19 pandemic, leaving little room for broad economic interventions.
"So, there's not much of fiscal buffers. So use your buffers in a very efficient way," Srinivasan stated. "And that's what is important for Philippines and for other countries in the region, especially those which rely a lot on imports [and] don't have much physical buffers of oil and gas."
The IMF has revised its 2026 growth forecast for the Philippines downward to 4.1% from 5.6%. If realized, this would represent the country's weakest economic performance since 2011, excluding the pandemic-induced contraction in 2020. The projection suggests the current administration may miss its growth targets for a fourth consecutive year.
While a rebound to 5.8% is anticipated for 2027, this recovery would still fall short of the economy's estimated potential growth rate of around 6%. The IMF attributes the economic strain to a combination of factors: the Philippines is grappling with the aftermath of a major governance scandal while simultaneously confronting a historic oil price shock.
Finance Secretary Frederick Go has defended the government's cautious strategy, describing it as a "balanced and fiscally responsible approach." Despite being granted emergency powers by Congress, the administration has opted to suspend excise taxes only on cooking gas and kerosene, maintaining taxes on diesel and gasoline.
Srinivasan noted the challenging economic context, stating, "The momentum coming into 2026 was weaker. And this reflects the fact that the country's sentiment is still weak given the governance issues. And then comes the shock."
Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. indicated there is room to raise interest rates, expressing optimism that increased government spending could counterbalance the effects of tighter monetary policy.
In a separate analysis, economists at Nomura suggested the Philippines would likely rely more heavily on monetary policy to mitigate the energy shock. They forecast above-target inflation and potential interest rate hikes, placing the country alongside Australia, New Zealand, and Malaysia in this regard.