The 2027 budget proposal targets a deficit of 5.1 per cent of GDP, compared with the 4.8 per cent deficit forecast in last year’s medium-term fiscal framework, Fitch said in its latest wire report.
It said that Philippines GDP growth remained weak at 2.3 per cent year-on-year (YoY) in the second quarter of 2026. Investment accounted for much of the slowdown, with gross fixed capital formation contracting 8 per cent quarter-on-quarter, reflecting the global energy-price shock and public infrastructure disbursements that remain subdued.
The Philippines’ proposed 2027 budget targets a deficit of 5.1 per cent of GDP, signalling slower fiscal consolidation amid weak growth, Fitch Ratings said.
GDP grew just 2.3 per cent YoY in Q2 2026. Fitch expects medium-term growth of around 6 per cent, while lower revenue expectations and reduced infrastructure spending could weigh on the fiscal outlook and debt stabilisation.
The credit rating agency said the weakness appears broad-based across the public and private sectors. Slower growth is feeding into the fiscal outlook, and repeated upward revisions to medium-term deficit targets suggest the government continues to prioritise support for growth over a faster pace of consolidation, leaving risks tilted towards a more gradual deficit reduction over the next few years.
The government now forecasts a deficit of 3.5 per cent of GDP by 2030, compared with 3.1 per cent in last year’s proposal. While headline deficit projections are only marginally higher, significant changes underpin the forecasts, primarily due to lower revenue expectations.
The government now expects revenue to average around 15.5 per cent of GDP over the medium term, versus about 16.5 per cent assumed in last year’s framework.
To compensate, the government appears to be reducing infrastructure disbursement plans to around 4 per cent of GDP, just over 1 percentage point lower across the projection horizon than in last year’s budget. Fitch added that weaker public infrastructure spending could weigh on medium-term growth, although the extent of the impact remains unclear.
Governance reforms could improve spending efficiency and help preserve the economic impulse from infrastructure spending even at lower spending levels. The government’s plan to make greater use of public-private partnerships and local government units for infrastructure investment may help offset lower central government disbursements.
The rating agency revised the outlook on the Philippines’ ‘BBB’ sovereign rating to Negative from Stable in April 2026, reflecting growing risks around the country’s medium-term growth potential. Investment remains well below its pre-pandemic trend, and downside risks to medium-term GDP growth are likely to persist without a sustained recovery.
The government has become more cautious in its growth assumptions, forecasting GDP growth of 5-6 per cent over the medium term, down from 6-7 per cent in last year’s budget and 6.5-8 per cent two years ago. Fitch expects medium-term growth to average around 6 per cent, although risks are tilted towards weaker outcomes.
Further, it also expects general government debt to GDP to rise slightly in the near term before stabilising over the medium term. Achieving that outcome will depend considerably on growth performance, investment recovery and the effectiveness of efforts to sustain infrastructure investment.
Fibre2Fashion News Desk
