Budget deficit seen narrowing in second half of 2026 — DoF

THE NATIONAL Government’s budget deficit is expected to narrow slightly to 5.44% of gross domestic product (GDP) in the second half, which would bring the full-year ratio to its lowest since 2022, the Department of Finance (DoF) said.

“In the first half, our deficit-to-GDP ratio improved to 5.46%, compared with 5.65% in the same period last year and we remain on track to meet our fiscal deficit target for 2026,” Finance Secretary Frederick D. Go said at a budget hearing on Monday.

“We project a deficit-to-GDP ratio of 5.44% in the second half of 2026, bringing the full year to 5.45%, our lowest deficit-to-GDP ratio since the start of the administration,” he added.

The Marcos administration is aiming to bring the deficit-to-GDP ratio down to 3.5% by 2030 through fiscal consolidation.

“To stay the course amid growing geopolitical tensions and the need to fund the government’s priority programs without relying on new taxes, we strengthened revenues,” Mr. Go said.

As of end-June, government revenues had reached P2.388 trillion, equivalent to 49.7% of the P4.807-trillion full-year target.

“As the country’s needs to continue to grow, we are also mobilizing additional sources of revenues to help fund government priorities,” he said.

Mr. Go said one important revenue source is the privatization of idle or noncore government assets.

Under the 2027 Budget of Expenditures and Sources of Financing (BESF), the government expects privatization proceeds to jump by 166.4% to P101.5 billion next year from the P38.1-billion program for 2026.

“In addition to privatization, we are also maximizing returns from government-owned or -controlled corporations (GOCCs),” he said. “This year, as we have last year, we have called on GOCCs to continue remitting dividends at 75% of their annual net earnings.”

Meanwhile, government disbursements stood at P3.175 trillion as of end-June, representing 49.1% of the P6.466-trillion full-year program.

“As resources are limited and the country’s needs continue to grow, we must be deliberate in directing public funds towards higher quality expenditures with greater multiplier effects, those that strengthen productive capacity, stimulate economic activity, and deliver long-term benefits to the people,” the Finance chief said. “The objective is not to spend less, it is to spend better.”

Mr. Go said the government’s revenue measures and more deliberate spending had helped narrow the deficit-to-GDP ratio to 5.6% in 2025 from 8.6% in 2021.

“This continued reduction in the deficit is an important indicator that the fiscal discipline we are pursuing is translating into concrete results. And because we continue to manage our fiscal deficit responsibly, our debt levels remain sustainable,” he said.

Despite the narrowing deficit, the National Government’s outstanding debt rose by 2.8% to P19.07 trillion at end-June from P18.55 trillion at end-May.

This brought the debt-to-GDP ratio to 66% in the second quarter, the highest since 2004.

Mr. Go said the ratio remained below the World Bank’s 70% indicative threshold for emerging markets. The government expects the ratio to ease to 63% by 2030.

However, next year’s BESF showed that the outstanding debt is projected to increase to P21.48 trillion by end-2027 from the P19.766 trillion expected at end-2026.

“More importantly, on our debt, we have maintained a prudent debt mix, predominantly domestic debt, predominantly carrying fixed interest rates and predominantly structured with long repayment terms,” Mr. Go said.

“In 2027, when we project borrowing requirements to reach P3.3 trillion, we will carry the same principles of our debt strategy into our borrowing program and make it even more sustainable,” he added.

Next year, 72% of the government’s borrowings will come from domestic sources, while the remaining 28% will be raised externally through loans and global bonds.

“This borrowing strategy allows us to keep the cost of borrowing low while helping broaden our investor base, maintain access to key international markets, and support the continued development of our local bond market,” he added.

Of the proposed P7.2-trillion national budget for 2027, P1.114 trillion or 15.9% would go to financial expenses, including interest payments on domestic and foreign debt, supervision and trusteeship fees, guarantees, bank charges and commitment fees.

The DoF is also seeking reforms to make the revenue system more efficient, equitable and sustainable.

These include the proposed tax-relief and revenue-generating measures under the Promoting Growth, Revenue, and Equity towards Socio-economic Sustainability tax package, as well as the proposed multinational minimum tax and tax amnesty bills. — Justine Irish D. Tabile