IMF: High debt limits Philippine response to energy crisis

MANILA, Philippines — The International Monetary Fund (IMF) urged the Philippine government to deploy a targeted fiscal response to the energy crisis, prioritizing the most vulnerable sectors as the country confronts the fuel turmoil with diminished budget buffers.

At a press conference, Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, noted that public sector debt—hovering around 60 percent of gross domestic product from 41.5 percent before the COVID-19 pandemic—now constrains the government’s ability to ramp up broad economic support.

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“So, there’s not much of fiscal buffers. So use your buffers in a very efficient way,” Srinivasan said.

“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,” he added.

In its newest World Economic Outlook, the fund lowered its 2026 growth forecast for the Philippines to 4.1 percent from 5.6 percent.

If that projection holds, it would mark the country’s weakest performance since 2011, excluding the pandemic-induced contraction of 2020. The revised figure also suggests the Marcos administration will likely miss its growth targets for a fourth consecutive year.

While the IMF expects a rebound to 5.8 percent in 2027, even that recovery would fall short of the economy’s estimated potential of roughly 6 percent. The fund and other multilateral lenders pointed to the same strain: The Philippines, still recovering from the fallout of a major graft scandal, is facing a historic oil price shock at a delicate moment.

‘Responsible approach’

Finance Secretary Frederick Go defended the administration’s cautious strategy earlier this week, saying policymakers had to come up with a “balanced and fiscally responsible approach.” Despite being granted broad emergency powers by Congress, the government has chosen to suspend excise taxes only on cooking gas and kerosene, leaving diesel and gasoline taxes intact.

“The momentum coming into 2026 was weaker. And this reflects the fact that the country’s sentiment is still weak given the governance issues,” Srinivasan said. “And then comes the shock.”

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Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said there was room to raise interest rates, expressing hope that a rebound in government spending could offset the drag from tighter monetary policy.

In a special report, economists at Nomura said the Philippines would likely lean more on monetary policy to respond to the energy shock, forecasting above-target inflation and potential rate hikes alongside Australia, New Zealand and Malaysia.

“Asia remains at the epicenter of the energy shock caused by the US-Iran conflict, but the economic impact and the policy responses are likely to vary widely across countries, creating significant market opportunities,” they said. INQ