Recently, the Congressional Policy and Budget Research Department (CPBRD) issued four budget briefs on the proposed 2027 national budget covering the Philippine economy, the medium-term revenue program, expenditure assessment, and public debt sustainability. Taken together, they tell one coherent story: the government is trying to consolidate its fiscal position at a time when growth is weakening, revenue mobilization is disappointing, fiscal space is narrowing and the cost of financing the budget is rising.
To paraphrase the second part of Charles Dicken’s famous line from A Tale of Two Cities, the budget timing is “the worst of times.”
The problem is not simply the size of the proposed P7.2-trillion budget. The more important question is the quality of fiscal adjustment: can the government consolidate without undermining economic growth, human capital, and social equity, the very conditions needed to make the debt burden manageable?
The budget’s aspirations are difficult to quarrel with. It promises better lives, stronger communities, greater opportunities, more education, health and social services, jobs and infrastructure. The problem is the context in which these aspirations must now be financed.
GROWTH WEAKENING, REVENUES VULNERABLE
Growth has weakened considerably. Real GDP growth slowed from 5.7% in 2024 to 4.4% in 2025, while the first six months of 2026 produced only 2.6% growth. To reach even the lower end of the government’s 3.5% full-year target, the economy would have to grow by at least 4.4% in the second half. The CPBRD’s own model puts 2026 growth at only around 2.3-2.6%.
This matters because revenues ultimately depend on economic activity. Revenues are still rising from a projected P4.8 trillion in 2026 to P5.2 trillion in 2027, P5.5 trillion in 2028 and P6 trillion in 2029, but not fast enough relative to the economy to generate the fiscal space originally envisaged.
This raises a more fundamental question than simply whether government should collect more taxes. Why is the tax system not capturing a larger share of a growing economy? The CPBRD points to stagnant tax effort despite successive policy and administrative reforms. The problem is therefore not just tax rates, but tax administration, compliance, and the capacity to capture a changing taxable base.
Nor can the government rely on privatization proceeds as a substitute for recurring revenues. The proposed P101.5 billion in 2027 is non-recurring and therefore cannot sustainably finance permanent expenditure commitments.
EXPENDITURE ISSUES
The expenditure side presents another concern.
The proposed P7.2-trillion budget is 6% higher than the 2026 level. But the composition is revealing. Social services decline by 5.5% to P2.46 trillion, while economic services rise by 17.8% to P1.83 trillion. General public services increase by 6.5%, defense by 6.8%, while debt interest payments rise sharply by 17.3% to P1.11 trillion.
The contrast is striking: the budget rises by 6%, but debt interest rises by nearly three times that rate.
This is the growing price of past borrowing and higher financing costs. It also illustrates why fiscal consolidation cannot simply mean cutting expenditures. The government must determine which expenditures produce the highest economic and social benefits.
There is a legitimate case for infrastructure and transport spending, particularly if these raise productivity and crowd in private investment. But Congress should ask whether the increased allocations will actually deliver these outcomes. Equally important, it should ask why social-sector allocations are declining and who bears the consequences.
The question is not whether infrastructure is more important than social services, or vice versa.
It is this: which combination of public spending gives the country the highest growth and equity return per peso?
That requires a distributional impact assessment of major expenditure changes. Who benefits from additional infrastructure? Who bears the reduction in health and education spending? Which income groups are affected by lower agricultural support? Could cuts in social programs create larger fiscal costs later?
BUDGET RIGIDITY
The four briefs also reveal a deeper structural problem: the budget is becoming increasingly rigid.
Mandatory expenditures such as personnel services, local government allocations, and debt interest accounted for about 65% of revenues in 2015. By 2025, this had risen to nearly 82%, and it is projected to approach 89% in 2027. Revenue-based fiscal space is consequently shrinking to barely 11% next year.
The implication is profound. The national budget is getting bigger, but the government’s room to choose is getting smaller.
Even more striking, the CPBRD estimates that the portion of the budget available for new and emerging priorities under Tier 2 could fall to only 2.2% in 2027.
Every new priority in health, education, climate change, food security, energy security, or defense will increasingly have to compete for an ever-smaller discretionary envelope.
This is why fiscal consolidation cannot mean simply protecting mandatory expenditures while squeezing whatever remains flexible.
Congress should ask: are all “mandatory” expenditures economically optimal simply because they are mandatory?
Debt interest cannot be cut. But personnel expenditures can be made more productive. Intergovernmental transfers can be accompanied by stronger accountability. Automatic appropriations can be periodically reviewed. Subsidies, special-purpose funds, tax expenditures, poorly performing programs, and legacy commitments should all be subjected to rigorous cost-benefit and performance assessments.
REALLOCATION, NOT INDISCRIMINATE REDUCTION
The objective should be reallocation, not indiscriminate reduction.
This becomes even more urgent because spending more does not automatically mean spending better. The CPBRD identifies persistent weaknesses in the link between financial spending, physical accomplishments, and actual development outcomes. High budget utilization is not necessarily evidence of value for money. In fact, about half of the country’s development indicators are reportedly at risk of not being achieved.
Congress should therefore ask a simple but fundamental question: What did Filipinos get in return for all that public spending?
That question takes us to debt.
Despite fiscal consolidation efforts, the debt-to-GDP ratio is projected to rise from about 66% in 2026 to 70.5% in 2028 and 72.9% by 2030. The CPBRD does not see an immediate solvency or liquidity crisis, but medium-term risks are clearly increasing. More importantly, its debt analysis shows that economic growth remains the principal force reducing the debt ratio, while the fiscal position is particularly vulnerable to an adverse growth shock.
This should settle one important point: borrowing per se is not bad.
The government plans to borrow about P3.3 trillion in 2027 despite a deficit of P1.7 trillion largely because it must refinance maturing obligations. Borrowing becomes problematic when borrowed funds do not generate sufficient economic and social returns to support future debt servicing.
Hence, the real issue is not whether government borrows. It is what it does with the borrowed money.
This is where the four briefs converge.
DANGER OF FAULTY FISCAL CONSOLIDATION
Faulty fiscal consolidation can become self-defeating. Indiscriminate cuts may reduce the deficit today but weaken infrastructure, health, education, investment, and potential growth tomorrow. Slower growth then means weaker revenues, less fiscal space, and a more difficult debt burden.
The answer is not slower consolidation. It is better consolidation.
Meaningful fiscal consolidation should therefore have four components: fiscal discipline, revenue mobilization, expenditure efficiency, and protection of growth and social equity.
This means broadening the tax base and improving compliance rather than relying excessively on new taxes. It means rationalizing tax expenditures. It means eliminating low-value spending rather than simply cutting high-value programs. It means strengthening procurement, project selection, and implementation. It means making personnel expenditures more productive and demanding greater accountability from agencies and local governments.
Most of all, it means abandoning “consolidation by arithmetic” — cutting programs, deferring projects, squeezing agencies, raising selected taxes, and refinancing debt simply to make the numbers fit.
That is not structural consolidation.
Structural consolidation creates permanent fiscal space. It raises durable revenues, improves the productivity of public spending, and reallocates resources toward investments that raise potential growth and protect vulnerable Filipinos.
Fiscal consolidation should therefore not mean making government smaller for its own sake.
It should mean making the fiscal system stronger with enough revenue, enough flexibility, and enough credibility to support growth, protect the vulnerable, and withstand the next shock.
Otherwise, we may discover too late that in trying to avoid a fiscal blowout, we have been budgeting for one.
Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.
