Within days of assuming office on July 1, 2022, the Marcos Jr. administration unveiled an ambitious fiscal consolidation plan: the Medium-Term Fiscal Framework 2022-2028 (MTFF 2022-28). The framework was unprecedented in two respects — it was the first of its kind in Philippine history, and the first such plan to be fully endorsed by both chambers of Congress through a joint resolution. The MTFF 2022-28 quickly became the new administration's guiding policy direction.

The MTFF 2022-28 set specific objectives. By the end of 2028, the economy was expected to grow by 6.5% to 8%, the public debt-to-GDP ratio was to decline from 61.8% to 51.1%, and the fiscal deficit was to narrow from 7.6% of GDP to 3%. However, with less than two years remaining in the current administration's term, these targets now appear increasingly out of reach.

Growth Has Fallen Behind Plan

The economic slowdown has persisted. In 2026, growth is expected to be weaker than in the preceding year. First-quarter GDP growth came in at a modest 2.8%, and the second quarter does not look promising. Planning Secretary Arsenio Balisacan has projected growth of only 3.5% to 4.5%, well below the MTFF target of 6.5% to 8%.

Several factors account for the weakness:

• Weaker household consumption, as higher inflation, falling consumer confidence, shrinking economic activity, and rising joblessness weigh on demand;
• Declining foreign direct investment; and
• Slowing remittances, driven by the declining deployment of overseas Filipino workers, the ongoing conflict in the Middle East, and a softer global economy. Remittances from overseas Filipinos have long been a structural pillar of the Philippine economy, typically equivalent to nearly 10% of GDP, meaning that any sustained decline directly affects household incomes and domestic consumption.

For the final two years of the Marcos Jr. administration, the Development Budget Coordination Committee (DBCC) revised its GDP growth forecast to 5-6%, a significant departure from the MTFF's original target of 6.5% to 8%.

Fiscal Discipline Lost

The COVID-19 crisis had a profound impact on the Philippine economy, causing contraction and pushing up the national debt-to-GDP ratio. Fiscal consolidation consequently emerged as the appropriate policy response. This was not the first time the Philippines confronted such a challenge: in the early 2000s, rising debt levels and persistent deficits prompted warnings of a looming fiscal crisis, eventually leading to politically difficult revenue measures including the Expanded Value Added Tax (EVAT) law of 2005. That reform helped restore fiscal credibility and set the stage for years of steady debt reduction that brought the pre-pandemic debt-to-GDP ratio down to 39.6%. The MTFF 2022-28 set two key objectives: to reduce the National Government debt-to-GDP ratio from 61.8% in 2022 to 51.1% in 2028, and to cut the fiscal deficit from 7.6% of GDP to 3% over the same period.

As of the end of June 2026, the National Government's outstanding debt reached a record high of P19.1 trillion (approximately $311.4 billion).

It is worth noting that there is no universally accepted threshold at which a debt-to-GDP ratio becomes problematic. The Philippines' debt-to-GDP ratio of 61.8% should not, by itself, be considered a cause for alarm. This level is, in fact, comparable to standards often sought after by other countries. For instance, one of the Euro convergence criteria specifies that the public debt-to-GDP ratio should be below 60%. The global debt-to-GDP ratio stands at roughly 95%, while that of the United States exceeds 120%, and Japan's surpasses 250%. Before the COVID-19 pandemic, the Philippines' debt-to-GDP ratio was 39.6%.

Similarly, the 3% fiscal deficit benchmark, while not sacrosanct, has long been accepted as a norm by many academics and policymakers. For a developing country like the Philippines, with its unusually large school-age population and a significant public infrastructure gap, a deficit-to-GDP ratio of 3% was a reasonable target. Maintaining fiscal discipline also has practical implications for sovereign credit ratings, which influence the government's borrowing costs; the Philippines currently holds investment-grade ratings from all three major agencies — Fitch, Moody's, and S&P — standings built over years of reform that could be pressured by sustained fiscal slippage.

Fiscal responsibility demands that the Philippines gradually and credibly reduce its deficit to prepare for future fiscal shocks and maintain sustainable public debt. Under the MTFF, the deficit was expected to contract from 7.6% of GDP in 2022 to 3% in 2028. However, it only temporarily declined to 7.3% in 2022 before the improvement dissipated. In 2024 and 2025, the actual deficit exceeded the planned trajectory, and this pattern is expected to continue through 2028.

The implications for debt sustainability are concerning. The primary balance — defined as the fiscal balance net of interest payments, expressed as a share of GDP — has followed a similar pattern. Under the original MTFF, it was expected to improve steadily from -5% of GDP in 2022 to -0.8% in 2028. The revised plan, however, now places the 2028 primary balance at -1.5%, representing a weaker trajectory with negative implications for debt sustainability.

The President and Congress appear to have abandoned their earlier commitment to fiscal consolidation. The revised MTFF now envisions a slower decline in the deficit, targeting 4.8% of GDP by 2028 rather than 3%. This difference is substantial, with an estimated P1.5 trillion lost from 2026 to 2028.

This lack of commitment by national leaders to fiscal consolidation could carry negative consequences for the country's long-term debt sustainability.

Benjamin E. Diokno is an economist who currently serves on the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). He previously served as Secretary of Budget and Management under President Joseph Estrada (1998-2001) and President Rodrigo Duterte (2016-2019); was Governor of the BSP and Chairman of the Monetary Board (2019-2022); and served as Secretary of Finance from 2022 to 2024 under President Ferdinand Marcos Jr.