(Bloomberg) -- Philippine Finance Secretary Benjamin Diokno warned of a “fiscal collapse” if the government does not overhaul its military pension system which he said is putting a strain on the national budget.

President Ferdinand Marcos Jr.’s Cabinet is planning to require active and incoming soldiers to contribute to their pension instead of the state fully funding it, Diokno said in a briefing Tuesday, discussing plans for pension reform.

“We have to address the issue. It’s not sustainable. If this goes on, there will be a fiscal collapse,” Diokno said at a televised briefing. State spending on pension of military, police and other uniformed ranks has increased over the years, reaching 130 billion pesos ($2.4 billion) in this year’s budget, he added.

The military pension overhaul, which needs to be approved by lawmakers and has been discussed for years, is back at the forefront as the government tries to free up fiscal space after its budget deficit swelled to a record in 2021 due to a pandemic-driven spending spree. Marcos’s economic team wants to narrow the fiscal shortfall from 7.3% of gross domestic product last year to 3% by the end of his six-year term.

The government also wants to stop indexing retirees’ pension to the salary of active personnel of similar rank, Diokno said. Reforms in military pension are being pushed months after talk of unrest among troops, which defense officials were quick to quell. Bills on the pension overhaul are still in early stages of discussions in Congress.

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