The International Monetary Fund (IMF) urged the Philippines to exercise fiscal discipline and prioritize targeted spending as the country’s debt ratio is projected to breach a critical threshold this year amid volatile global energy markets.

The Washington-based lender expects the general government debt to hit 60.2 percent of gross domestic product (GDP) in 2026, according to the latest Fiscal Monitor report. The latest IMF projection marked a deterioration from 59.4 percent in 2025 and signals a thinning of the fiscal buffers that protected the economy during previous downturns.

Krishna Srinivasan, director of the IMF’s Asia-Pacific Department, told reporters during a briefing in Washington that while the Philippines is not in an immediate debt crisis, its lack of wiggle room necessitates a more efficient use of remaining resources.

“Debt levels [for the Philippines] aren’t very low. It’s still at about 60 percent. There’s not much by way of fiscal buffers. So use your buffers in a very efficient way,” Srinivasan said.

The warning comes after the Marcos administration saw the national government’s total outstanding debt climb to a record ₱17.71 trillion by the end of 2025, overshoooting by ₱350 billion the government’s initial borrowing target for the year.

Srinivasan noted that the Philippines is particularly vulnerable to the ongoing conflict between the United States (US) and Iran. As a net oil importer with limited domestic reserves, the Philippine economy faces significant stagflation risks—a combination of stagnant growth and high inflation.

The IMF recently slashed its 2026 growth forecast for the Philippines to 4.1 percent from an earlier estimate of 5.6 percent, citing the impact of energy shocks and slowdown in public spending.

The current debt trajectory stands in stark contrast to the country’s pre-pandemic fiscal health. Between 2017 and 2019, the Philippines maintained a debt-to-GDP ratio of approximately 37 percent to 38 percent.

While the IMF expects the ratio to gradually retreat to 54.7 percent by 2030, the medium-term outlook remains sensitive to external shocks and domestic governance issues.

In response to the fiscal squeeze, the government has shifted away from broad, expensive subsidies toward the Unified Package for Livelihoods, Industry, Food, and Transport (UPLIFT).

The program includes targeted relief such as service contracting subsidies for 50,000 public utility vehicle operators.

Finance Secretary Frederick D. Go defended the administration’s strategy, noting that the fiscal deficit narrowed to ₱5.8 billion as of the end of February, down significantly from ₱103.1 billion a year earlier. Go said the improved revenue collection provides a “safety net” that allows the government to support vulnerable sectors without further blowing out the deficit.

However, Srinivasan cautioned that investor sentiment has already been dampened by concerns over public spending efficiency, specifically regarding flood control projects.

He emphasized that with buffers already depleted by successive regional shocks, the government must remain "cognizant" of its limited capacity to absorb further economic hits.

“When we talk about providing support, we keep harping on the point about providing targeted support. This is because fiscal buffers have come down, and there is uncertainty over how long the shock will persist,” Srinivasan said.

“This is particularly important for the Philippines and other countries in the region, especially those that rely heavily on imports and lack sufficient physical buffers of oil and gas,” he added.