Budget deficit widens more than fivefold in July as spending surges

MANILA, PHILIPPINES, 28 AUGUST 2026 —

The Philippine government’s budget deficit ballooned 461.73% to P106.3 billion in July as spending jumped 19.82% to P588.6 billion, the Bureau of the Treasury reported on Tuesday.

Expenditures rose on higher disbursements for social assistance, capital projects and military modernisation, while revenue growth slowed to 2.12% as nontax collections fell 39.92%. The Treasury attributed the drop partly to the timing of central bank dividends, with Bangko Sentral ng Pilipinas remitting P3.4 billion in July compared with P18.9 billion a year earlier.

Tax revenues climbed 7.02% to P452.7 billion, led by a 6.92% increase at the Bureau of Internal Revenue and a 7.48% gain at the Bureau of Customs.

Interest payments jumped 29.14% to P137.2 billion, driven by coupon payments on new domestic debt and global bonds as well as foreign-exchange losses on foreign-currency obligations.

For the seven months to July, the deficit widened 13.85% to P893.1 billion, equivalent to 53.84% of the P1.659 trillion annual ceiling approved by the Development Budget Coordination Committee in May. Total revenue rose 5.05% to P2.87 trillion, 59.72% of the P4.807 trillion full-year program, with tax receipts up 5.66% to P2.595 trillion.

The Bureau of Internal Revenue attributed its 5.31% increase to improved taxpayer services and stronger compliance, while the Bureau of Customs cited higher import duties and VAT on stronger US dollar and elevated crude prices, alongside better procedures and digital transformation.

Expenditures climbed 7.02% to P3.764 trillion, 58.21% of the P6.466 trillion disbursement target. The primary budget deficit widened 3.36% to P272.2 billion.

Francisco Cid L. Terosa, associate professor and former dean of the University of Asia and the Pacific School of Economics, said slower economic growth in the first half of 2026 constrained revenue. “Revenue growth was slow due to the economic slowdown in the first half of 2026,” he said.

“Slower consumer spending and capital formation led to sluggish VAT and excise tax collections, while corporate income tax collections were impeded by slower corporate expansion and downscaled business activities.”

The Philippine economy expanded just 2.6% in the first half, down from 5.4% a year earlier, as inflation weighed on household consumption and a steep drop in public construction weighed on investment. “The deficit will continue increasing due to elevated deficit targets, prioritisation of public spending and infrastructure rollouts to revitalise the economy even if it leads to a larger deficit, and slower forecasted GDP growth,” Mr Terosa said.

For Malaysian business readers, the widening Philippine fiscal gap underscores how elevated public spending to counter external shocks can strain budgets even as revenue growth lags.

Related: Francisco Cid L. Terosa