The Senate Economic Planning Office (Sepo) has issued a strong call for enhanced structural reforms to ensure fiscal sustainability, increase productivity, and improve governance. This comes as the national government prepares the 2026 national budget under increasingly constrained financial conditions.
Fiscal Space Tightens, Mandatory Spending Rises
Brian Benson See, a legislative staff officer at Sepo, presented these critical recommendations during the 11th Socioeconomic Research Portal for the Philippines (SERP-P) Knowledge-Sharing Forum. The event was organized by the Philippine Institute for Development Studies (PIDS).
See emphasized that tighter fiscal conditions are limiting the government's ability to allocate resources flexibly. He pointed to weaker revenue growth combined with higher disbursements as the primary drivers. The total budget for 2026 is set at $6.7 trillion, but its formulation is hampered by this shrinking fiscal space.
A significant concern is the rising portion of the budget dedicated to mandatory expenses. Mandatory spending, covering items like salaries, pensions, and debt service, now consumes 57.7 percent of the total budget. Debt servicing alone is projected to reach approximately P950 billion, which is nearly 14 percent of all government spending.
This situation puts intense pressure on allocations for crucial growth drivers. Investments in infrastructure, transport, and other productivity-enhancing projects are facing cuts, raising alarms about the country's long-term growth potential and its preparedness for disasters.
Revenue Challenges and the Need for a Stronger Economic Base
The revenue picture further complicates the budget outlook. In 2024, government revenues hit a record 16.7 percent of Gross Domestic Product (GDP). However, this peak was partly due to one-time income sources, such as excess funds from government-owned and controlled corporations (GOCCs), which are no longer available.
With economic growth slowing in 2025, revenue growth has also weakened. Consequently, the government has been forced to lower its revenue target for 2026 to 16.2 percent of GDP.
Against this challenging backdrop, Sepo stressed that the fundamental solution lies in strengthening the economy's productive capacity. See noted that while the Philippines maintains steady GDP growth, easing inflation, and lower unemployment, its economic structure remains vulnerable.
"The economy currently rests on relatively stable fundamentals. Gross Domestic Product (GDP) growth is steady, inflation is easing, and unemployment rates are lower," See stated. However, he warned that this growth is not secure without tackling deep-seated issues.
Key Recommendations for Long-Term Resilience
Sepo's policy roadmap focuses on reinforcing growth foundations, safeguarding fiscal health, and improving governance to ensure budget goals are realistic. "The path forward demands policy choices that prioritize long-term resilience, economic diversification, and fundamental improvements in governance," See asserted.
The office outlined several specific measures:
- Modernize the agriculture sector to stabilize food prices and boost farm productivity.
- Implement a coherent industrial policy to revitalize manufacturing and reduce the economy's overreliance on the services sector.
- Address persistent structural constraints like low productivity, uneven regional development, and governance challenges.
These reforms are aimed at building an economy better equipped to withstand external shocks, which it is currently vulnerable to due to weak domestic production and limited value addition in key industries. The call from Sepo sets the stage for critical debates as lawmakers begin crafting the 2026 national expenditure plan.
