EXCLUSIVE: IMF backs Marcos economic team’s bid to reform military pension

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Metro Manila (CNN Philippines, May 12) — The International Monetary Fund (IMF) has backed the Marcos administration's bid to reform the pension system for the military and the police.

IMF visiting team mission head Shanaka Jay Peiris exclusively told CNN Philippines that the tax agenda that President Ferdinand Marcos Jr.’s economic team laid out for the next two years will boost state coffers and narrow the country’s budget deficit within target.

Marcos and his economic managers earlier said they want to cut the deficit to just 3% of gross domestic product by 2028 when he ends his term.

That requires fiscal consolidation or creating fiscal space via tax reforms, or things like changing the military pension plan – something that Finance Secretary Ben Diokno signaled several times this year.

“For the medium-term, the military budget or military spending will go up a lot because it’s indexed to current military wages, and also, it’s quite generous," Peiris said. "So, it’s really a medium-term issue, so I think it’s better to address that now before it becomes a much larger share of the budget."

“It’s really a more prudent medium-term kind of approach to meet the medium-term deficit target of 3%," she added. "They probably need to do this. If they don't do that, they will need to raise more revenues that will hurt the poor and other social groups as well."

Diokno earlier said he hopes the Marcos administration could pursue proposed reforms on the pension system for military and uniformed personnel (MUP) that were put off by previous administrations.

The MUP pension is automatically indexed to the salary of the personnel of the same rank, which means that if the salary of the incumbent is doubled, retirees would see their pension jump by 100%, the country’s finance chief explained.

Currently, military personnel get an average monthly pension of ₱40,000, which is way higher than retirees from government agencies, such as the Government Service Insurance System and the Social Security System. Diokno had stressed the situation is “not sustainable" and could eventually lead to a "fiscal collapse."

He said they have four proposals: removal of automatic indexation of pension to the salary of active personnel of similar ranks; military uniformed personnel receiving their pensions starting at 57 years old; requiring mandatory contributions for active personnel and new entrants; and applying the reform to all active personnel and new entrants.

Meanwhile, the economic team also wants to tax single-use plastics, digital sales and change the mining tax regime among others, and the IMF views this plan as more of widening the tax base rather than tax hikes.

The remarks were made at the conclusion of the IMF’s annual checkup of the Philippines economic and financial health when the IMF met the economic team.

The Washington-based lender has kept its growth forecast at 6% for the Philippines this year, despite risks of persistent inflation and higher borrowing costs.

The IMF expects tighter-for-longer rates by the Bangko Sentral until inflation falls decisively within the central bank’s official target range of 2 to 4%.