While the share of the Philippine government's budget deficit and debt to the economy are going down and "stabilizing," respectively, the ASEAN+3 Macroeconomic Research Office (AMRO) is urging fiscal authorities across the region to remain prudent in spending on public goods and services as a global trade war looms.
In its ASEAN+3 Fiscal Policy Report (AFPR) 2025, the regional macroeconomic surveillance organization AMRO said that policymakers in the 10-member Association of Southeast Asian Nations (ASEAN), China, Hong Kong, Japan, and South Korea "need to maintain flexibility to respond swiftly to emerging shocks amid heightened uncertainties, particularly given rising protectionist trends."
"As fiscal positions weakened and fiscal space narrowed, sustained efforts to implement fiscal consolidation and rebuild buffers over the medium term are critical. Policymakers are also encouraged to adopt comprehensive policy packages to address structural challenges and foster sustainable, inclusive growth," AMRO said in a statement on Monday, April 21.
"Fiscal policies should remain agile and flexible to mitigate potential adverse impacts and support economic stability amid escalating trade uncertainties," AMRO deputy director for functional surveillance and research Abdurohman said.
"Preemptively preparing contingency plans, and outlining specific scenarios and corresponding policy actions, will enable swift interventions with well-targeted measures," he added.
"Considering the importance of rebuilding fiscal buffers to mitigate future economic shocks and ensuring long-term fiscal sustainability, continued fiscal consolidation efforts over the medium term are warranted," said AMRO group head for fiscal surveillance Seung Hyun "Luke" Hong, who was AFPR 2025's lead author.
According to AMRO's report, "Malaysia, the Philippines, Vietnam, Cambodia, and Indonesia have moderate fiscal space, primarily due to financing risks from a high share of foreign currency-denominated debt, non-resident-held debt, or external financing requirement."
The report noted that the share of the Philippines' fiscal deficit to gross domestic product (GDP) has been declining—to 5.7 percent last year from 6.2 percent in 2023. The budget deficit is projected to further narrow to 5.3 percent of GDP this year.
As for the government debt-to-GDP ratio, AMRO estimated this year's level to go down to 60.2 percent from last year's 60.7 percent, which was an increase from 2023's 60.1 percent.
The Marcos administration is embarking on fiscal consolidation to slash the budget deficit to 3.7 percent of GDP and public debt-to-GDP to 56.3 percent when the President steps down in 2028.
However, AMRO pointed to ballooning expenditures by the Philippine government, including salary increases for government officials, a bigger national tax allotment (NTA) for local government units (LGUs), and rising amortization payments for borrowings that piled up, especially at the height of the Covid-19 pandemic.
"The financing sustainability buffer declined significantly, driven by different factors across economies. In China, South Korea, Laos, the Philippines, and Thailand, the primary driver was amortization needs, as accumulated debt has led to increased repayments depending on the maturities," AMRO said.
Across the region, "interest payments further strained financing buffers, driven by a combination of high debt levels and rising borrowing costs," it added.
It does not help that "in some member economies, including South Korea, the Philippines, and Thailand, concerns over pension sustainability are already mounting," according to AMRO.
While the Philippines' tax collections as a share of GDP "has shown a gradual and sustained increase" in recent years, mainly due to higher taxes slapped on consumption, AMRO said that tax administration in the country still needs improvement.
Citing the World Bank's inaugural Business Ready 2024 report, AMRO noted that "Cambodia, Indonesia, the Philippines, and Vietnam scored relatively low in tax administration-related indicators."
"In the category 'public services provided by the tax administration,' Cambodia, the Philippines, and Vietnam scored poorly due to weak data management, lack of system integration for tax registration/deregistration, issues with taxpayer databases (such as, tax identification number or TIN), and weak transparency," it added.
Also, "tax office staffing levels were found to be insufficient in Cambodia, the Philippines, and Indonesia, reflecting administrative capacity challenges," AMRO said.