Pacific Money | Economy | Southeast Asia

Breaking Down the Philippines’ 2027 Budget

The budget, which anticipates a return to strong growth next year, is based on some optimistic assumptions about the direction of the global economy.

The Philippine Ministry of Finance building in Manila, Philippines, Aug. 20, 2019.

Lawmakers in the Philippines are working to pass a proposed PHP 7.2 trillion ($115 billion) budget for 2027. The budget still needs to pass through various legislative committees before a final vote, but so far the process looks less dramatic than last year’s fiscal showdown, when lawmakers slashed funding for the Department of Public Works after a massive scandal involving fictitious infrastructure projects. 2027, by comparison, looks to be pretty calm by budgeting standards.

The 7.2 trillion in expenditures represents a 6 percent increase over last year, with a substantial slice of total spending (17 percent) allocated for education and manpower. A quarter of public spending will go toward economic services such as agriculture, infrastructure and subsidies to local governments, while defense spending is set to get over 6 percent of total outlays. This is all rather unremarkable, but it’s worth digging into some of the underlying assumptions to better understand the Philippines’ spending plans relative to its fiscal position.

The first thing to note is that economic growth is slowing. Budget planners are now expecting GDP growth to come in somewhere between 3.5 and 4.5 percent in 2026. The World Bank agrees, projecting an annual growth rate of 3.7 percent. This is hardly unique to the Philippines. Countries across the region and around the world are facing stiff economic headwinds due to geopolitical instability, trade frictions, and rising energy prices. But in recent years, including 2027, budget planners have adopted very optimistic views about future growth.

Last year, when they were making the 2026 budget, planners assumed GDP growth this year would be between 6 and 7 percent. Actual growth is going to be quite a bit lower than that, potentially below 4 percent. In 2027, planners are forecasting GDP will bounce back to between 5 and 6 percent. This is possible, but right now energy prices, borrowing costs, and foreign exchange rates are going in the opposite direction and make such projections highly uncertain.

The 2027 budget framework assumes the Philippine peso will not pass 62 to the U.S. dollar, and that oil won’t go past $90. Dubai Crude, the benchmark used by planners, is around $115 right now, and the peso is trading at nearly 63 to the dollar. It is not certain these conditions will improve next year, particularly given that Donald Trump will still be loose in the........

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