Philippines 2025
Purpose and Management
The overall objective of the 2025 Public Expenditure and Financial Accountability (PEFA) Assessment is to provide the Government of the Philippines with a comprehensive, up-to-date diagnostic of the performance of the public financial management (PFM) institutions, systems, and processes in the Philippines.
This 2025 PEFA Performance Assessment Report, with supplementary PEFA Frameworks for Climate and Gender (PEFA++), and complemented by the Disaster-Resilient and Responsive Public Financial Management (DRR-PFM) Assessment Tool developed by the World Bank, was prepared by the Philippine government, with the Department of Budget and Management (DBM), Department of Finance (DOF), Bureau of Treasury (BTr), and Commission on Audit (COA) leading the initiative.
The assessment was funded by several development partners, including the Asian Development Bank (ADB), Agence Française de Développement (AFD), The Global Fund, United Nations Development Programme (UNDP), and United Nations Children’s Fund (UNICEF). The PFM Committee with the support of its Secretariat oversaw the process, while development partners provided technical assistance and financial resources. Previous diagnostic work, such as the 2016 PEFA report, had influenced previous PFM reforms roadmap, ensuring evidence-based reforms aligned with international best practices.
Within the PEFA++ and DRR-PFM assessment, the purpose of the 2025 PEFA Assessment was to evaluate the Philippines' PFM system against global benchmarks, ensuring alignment with international best practices, enhancing the country's credibility among development partners, and improving access to external funding and technical assistance. In accordance with the PEFA methodology, the assessment covered the last three fiscal years: 2021, 2022, and 2023. Some dimensions or indicators were evaluated at the time of the assessment.
The PEFA methodology is a globally recognized tool for assessing the performance of PFM
systems, structured around seven (7) pillars that capture the core functions of PFM:
Pillar One: Budget reliability
Pillar Two: Transparency of public finances
Pillar Three: Management of assets and liabilities
Pillar Four: Policy based fiscal strategy and budgeting
Pillar Five: Predictability and control in budget execution
Pillar Six: Accounting and reporting
Pillar Seven: External scrutiny and audit
These pillars are assessed using 31 high-level indicators, which together provide a comprehensive overview of the performance and institutional soundness of a country's PFM system.
Each of the 31 indicators is further broken down into a total of 94 dimensions. These dimensions serve as the primary units of assessment, each focusing on a specific aspect of performance such as legislative oversight, budget credibility, or procurement transparency. Every dimension is scored on a four-point ordinal scale (A, B, C, D) based on clearly defined criteria set out in the PEFA 2016 Framework, published and maintained by the PEFA Secretariat1. A dimension is scored D* when no information has been provided.
The scores for individual dimensions are then aggregated to derive a score at the indicator level, using one of two prescribed aggregation methods:
Method M1 (Weakest Link Method): This method applies to indicators where strong performance requires that all dimensions be achieved at the same level. In this case, the lowest score among the dimensions determines the overall indicator score. It reflects the principle that a deficiency in one aspect can undermine the effectiveness of the entire process.
Method M2 (Average Method): This method is used when different dimensions reflect distinct aspects of performance, and where an average level of performance is considered adequate. The indicator score is determined based on the average of the dimension scores, with defined rules for rounding.
The assessment pursued three objectives: (i) measure PFM progress since the last PEFA assessment conducted in 2015; (ii) provide a shared understanding among stakeholders for the midterm review of the PFM Reforms Roadmap 2024–2028 and the preparation of a detailed action plan to address pending gaps; and (iii) support the achievement of PEFA-related policy actions in selected policy-based loans of ADB and other development partners. Furthermore, ADB, in collaboration with other development partners, is using the report findings to assess fiduciary risks and work with government officials to strengthen and harmonize financial management arrangements for donor-funded projects using country systems.
Key initiatives under the PFM reform agenda include the Government Integrated Financial Management Information System (GIFMIS), Unified Accounts Code Structure (UACS), Medium- Term Expenditure Framework, and Transparency and Accountability Initiatives.
Main Strengths and Weaknesses of the Public Financial Management Systems in the Philippines
The PFM system has demonstrated improvements in budget reliability, transparency, accounting and reporting over the past three years (i.e. from 2021 to 2023). Notably, aggregate revenue outturn for the indicator PI3.1 has consistently met or exceeded expectations at 97%–106% of budgeted revenue, earning an A rating. Service delivery performance information (PI8) is also strong across all dimensions (8.1–8.4 each rated A), reflecting the successful publication of policy objectives, performance indicators, output/outcome data, and the conduct of annual independent evaluations. Amidst these improvements, the PFM system continues to face challenges in expenditure management, most clearly illustrated by significant variances in the functional composition of expenditures (PI2.1: rated D) and incomplete processes for capturing comprehensive asset data (PI12.1 and PI12.2, each rated C). Additionally, some accounts remain outside the Treasury Single Account (TSA), and certain government agencies continue to rely on manual processes that limit the timely consolidation and reconciliation of reports (PI27.1, PI27.3, PI28.2, PI28.3, all rated C). The rollout of critical integrated systems— namely the Integrated Financial Information System (IFMIS), the Budget and Treasury Management System (BTMS), and eGovPay—continues but at a slower pace, restricting their potential impact on the PFM system.
Strengths
Budget Reliability and Revenue Management
Consistently strong revenue outturns (PI-3.1 = A). Actual revenues have remained within 97%–106% of budgeted figures in each of the last 3 years, underlining effective tax administration and prudent fiscal policy.
Effective contingency reserve management (PI-2.3 = A). Expenditure from contingency funds stayed well below 3% of the originally approved budget, demonstrating disciplined use of contingency reserves.
Expenditure composition by economic classification (PI-2.2 = B). Variance in expenditure composition by economic type has generally remained below 10% over the last 3 years, indicating better alignment between planned and actual spending patterns on the economic side.
Transparency of Public Finances
Comprehensive budget documentation (PI-5.1 = A). The annual budget documentation meets international benchmarks, with extensive information about fiscal forecasts, economic assumptions, and policy goals.
Public access to fiscal information (PI-9.1 = A). Eight essential elements — Including all five basic elements — are made available to citizens in a timely manner, supporting accountability and open government.
Clear rules for transfers to local government units (PI-7.1 = A, PI-7.2 = A). Transfers to Local Government Units (LGUs) follow well-defined allocation formulas, with timely notifications that enable local governments to plan and budget effectively.
Sound Management of Public Investments and Service Delivery
Robust project selection and monitoring (PI-11.2 = A; PI-11.4 = B). All major investment projects are selected using published criteria, while physical and financial progress data are monitored by implementing agencies and the Department of Economy, Planning, and Development (DepDev).
Performance plans and achieved results (PI-8.1 = A; PI-8.2 = A; PI-8.3 = A; PI-8.4 = A). Agencies publish service delivery objectives, outputs, and outcomes annually. Independent evaluations conducted by COA or through other reviews ensure ongoing accountability and inform policy decisions.
Predictability and Control in Budget Execution
Strong revenue administration and daily revenue collections transfers (PI-19.1 = A; PI-20.1 = A; PI-20.2 = A). Agencies such as the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) maintain transparent processes for revenue collection, with timely daily transfers into the TSA.
Reliable cash forecasting (PI-21.2 = A) and commitment ceilings (PI-21.3 = A). A monthly cash flow forecast is updated systematically, and budget allotments are released effectively through the General Appropriations Act (GAA), reducing uncertainty among line agencies.
Stringent internal controls (PI-25.1 = A; PI-25.3 = A). Procurement and payment rules are well-defined, most payments follow standard procedures, and all exceptions are pre-authorized and justified.
Accounting, Reporting, and Audit Framework
Adoption of Philippine Public Sector Accounting Standards (PPSAS) (PI-29.3 = A). Annual financial reports conform to national and international standards, backed by Philippine Application Guidance, the Government Accounting Manual (GAM), and COA Circulars.
Extensive internal audit coverage (PI-26.1 = A). All departments have an Internal Audit Service (IAS) or Unit covering a substantial portion of their operations, with a focus on evaluating internal controls.
Recurring external audit and follow-up (PI-30.1 = C; PI-30.3 = B). While coverage is generally broad, there have been some data access issues (particularly with BIR revenue), yet audited entities are required to respond to COA recommendations promptly.
Weaknesses
Expenditure Management and Composition Variances
High functional composition variance (PI2.1 = D). Despite economic classification being relatively stable, expenditure by function continues to deviate more than 15% from approved targets in each of the last three years. This undermines the reliability of the detailed budget as a tool for directing resources to priority sectors.
Partial consolidation of cash balances (PI21.1 = C). Certain foreign-funded project accounts and trust accounts remain outside the TSA. This fragmentation hampers the government’s ability to have a real-time view of all cash resources.
Partial consolidation of cash balances (PI-21.1 = C). Certain foreign-funded project accounts and trust accounts remain outside the TSA. This fragmentation hampers the government’s ability to have a real-time view of all cash resources.
Asset and Liability Management
Inconsistent monitoring of financial and nonfinancial assets (PI-12.1 = C; PI-12.2 = C). Although some progress has been made through recent policy issuances and the rollout of the National Asset Registry System (NARS), coverage remains incomplete, particularly beyond key national government agencies, and issues flagged by COA persist.
Absence of a comprehensive medium-term debt strategy (PI-13.3 = D). While the recording and approval of debt and guarantees (PI-13.1 = A; PI-13.2 = A) are robust, the BTr’s current debt strategy does not meet essential PEFA requirements for a multiyear, systematic plan.
Management of Arrears and Revenue Arrears Monitoring
Limited monitoring of expenditure arrears (PI-22.2 = C). Agencies must report due and demandable obligations annually, but many do not consistently submit these, resulting in incomplete data on the government’s outstanding liabilities.
Revenue arrears still significant (PI-19.4 = D). Although the overall stock of arrears is below 40% of total revenue collection, a large share of these arrears—over 75%—are more than 12 months old, suggesting significant enforcement and collection challenges.
Procurement Complaints and Legislative Scrutiny
Weak procurement complaints mechanism (PI24.4 = D). The existing Government Procurement Reform Act does not establish an independent entity dedicated to handling procurement-related grievances, raising concerns about the objectivity and transparency of the current system.
Limited legislative scrutiny of external audit reports (PI-31.1–31.4 = D). No formal processes exist for legislative committees to examine audit findings on the government’s annual financial statements. Consequently, neither formal hearings nor formal recommendations emerge from legislative scrutiny, reducing the impetus for systemic follow-up.
Reporting Timeliness and Data Integration
Delays and accuracy issues in in-year budget reports (PI28.2 = C; PI28.3 = C). Quarterly budget execution reports generally appear within eight weeks, but their reliability remains uneven due to continued reliance on manual processes and partial submission by agencies.
Partial bank reconciliation and outstanding advances (PI-27.1 = C; PI-27.3 = C). While most active government accounts are reconciled quarterly, a significant number of cash advances to Government-Owned and Controlled Corporations (GOCCs) remain unliquidated, complicating the accuracy of year-end financial statements.
Impact of Public Financial Management Performance on Budgetary and Fiscal Outcomes
The Philippine public financial management (PFM) system shows notable strengths in maintaining fiscal discipline and supporting efficient service delivery. However, there is room for improvement in strategic resource allocation, particularly in integrating performance information and enhancing medium-term fiscal planning. There are also weaknesses in arrears monitoring, financial data integrity, and in the lack of digital tools to align the PFM system with international standards.
1. Aggregate Fiscal Discipline
The PFM system has made significant strides in ensuring aggregate fiscal discipline. Strong mechanisms, such as effective expenditure commitment controls and adherence to the TSA, have been instrumental in consolidating government cash resources and preventing overcommitment. Indicators such as PI-1 (Aggregate Expenditure Outturn) and PI-20 (Accounting for Revenue) demonstrate improved alignment between approved budgets and actual expenditures (Figure E.1). However, challenges remain in the completeness of annual financial reports (PI-29), particularly in the reporting of arrears and liabilities, which could undermine fiscal transparency. Enhancing financial data integrity and addressing these gaps would bolster the government’s ability to maintain fiscal discipline.
2. Strategic Resource Allocation
The strategic allocation of resources is moderately effective, supported by robust budget preparation processes that align government expenditures with priorities. Comprehensive in-year budget reports (PI-28.1) facilitate tracking of resource use against planned objectives, enabling some degree of accountability. However, limitations in medium-term fiscal planning and the lack of integration of performance information into budget documents (PI-8) hinder optimal allocation of resources. Although procurement processes under PI-24 (Procurement) are transparent and regulated by systems like Philippine Government Electronic Procurement System (PhilGEPS), the absence of comprehensive procurement performance data constrains the government’s ability to make informed, strategic decisions. Addressing these gaps would significantly enhance the alignment of resources with long-term development goals.
3. Efficient Service Delivery
Efficient service delivery is supported by mechanisms that ensure timely fund disbursement and adherence to financial management rules. The integration of payroll systems with personnel records, as reflected in PI-23 (Payroll Controls), minimizes risks such as ghost workers and contributes to the efficiency of public services. Procurement processes, evaluated under PI-24, demonstrate transparency, which further supports resource allocation for service delivery. However, gaps in compliance improvement strategies and weaknesses in arrears monitoring (PI- 19 and PI-22) impact the timeliness and consistency of service delivery. Additionally, the underutilization of digital tools for financial management (PI-27.4) poses challenges to operational efficiency. Strengthening these areas would improve the government’s capacity to deliver public services effectively.
