Gov’t seen to borrow P2.7 trillion to cover fiscal deficit in 2026
MANILA, Philippines — The government is expected to borrow around P2.7 trillion to finance the anticipated fiscal deficit of P1.6 trillion for the 2026 national budget, the House of Representatives’ Congressional Policy and Budget Research Department (CPBRD) said in its report.
CPBRD, in a series of analyses on the 2026 National Expenditures Program (NEP) released on Monday, said that under the proposed budget, P2.1 trillion will be borrowed from domestic sources while P627.1 billion will be sourced externally, or 77 percent from domestic lenders and 23 percent from foreign firms.
“In financing the fiscal deficit, the government can typically employ one or a combination of strategies to close the budget gap – borrow, expand the money supply, increase taxes, and/or decrease expenditures. In recent years, approximately 75% of government borrowings have consistently come from domestic sources,” CPBRD said.
“For the proposed FY 2026 national budget, the government is expected to borrow about P2.7 trillion to finance the anticipated fiscal deficit amounting to P1.6 trillion. Government is expected to borrow P2.1 trillion from domestic sources through fixed rate Treasury bonds and Treasury bills, while P627.1 billion will be sourced externally through program loans, project loans, and bonds and other inflows,” it added.
This will be the largest loan to fill up the expected fiscal deficit under President Ferdinand Marcos Jr.’s administration, as the CPBRD noted that the Department of Budget and Management (DBM) Budget of Expenditures and Sources of Financing for 2026 showed that gross borrowings was at P2.1 trillion in 2023; P2.5 trillion for 2024; and P2.6 trillion in 2025.
The split of the government’s borrowing for 2026 is slightly higher compared to 2025, wherein 81 percent came from domestic borrowing, while foreign borrowing is at 19 percent.
“For FY 2026, the government’s financing mix is pegged at 23:77 in favor of domestic borrowing, a shift from the 19:81 ratio programmed for this year. As shown in Figure 2, from 2020 to 2024, the share of external borrowing ranged between 22% and 27%, with domestic borrowing consistently dominating the mix,” CPBRD said.
“However, the 2025 program shows the most pronounced shift, with external borrowing dropping to 19%, its lowest in the seven-year span, and domestic borrowing rising to 81%, its highest,” it added.
Despite a higher borrowing for 2026, CPBRD said that the debt service for 2026 is expected to be around P2 trillion, which means 30.3 percent of the proposed budget will be used to pay debts.
While this is lower than the 33.8 percent debt service recorded in 2025, it is still way higher than pre-pandemic levels, like the 19.7 percent in 2019.
“The debt service expenditures, comprising interest payment and principal amortization, continues to consume substantial portion of the annual government budget. For FY 2026, the total debt service is projected at P2 trillion, with P950 billion allocated for interest payments and P1.1 trillion for principal amortization,” CPBRD said.
“Although the debt service-to-expenditure ratio is projected to decline by 3.5 percentage points to 30.3% in 2026, it remains elevated compared to pre-pandemic levels, underscoring the persistent fiscal burden posed by debt obligations,” it added.
With these in mind, CPBRD predicts that the debt-to-GDP (gross domestic product) ratio will still be at the 60 percent level in 2026, between 60.9 percent and 60.6 percent.
It will only fall below the 60 percent threshold by 2027, but at just between 59.9 percent to 59.6 percent.
CPBRD’s prediction is still higher than the national government’s projection of a 56.6 percent and 53.4 percent debt-to-GDP ratio for 2026 and 2027, as stated in the Medium Term Fiscal Framework.
“It is worth emphasizing that these projections are highly contingent on several favorable conditions – robust economic growth; sustained revenue expansion; favorable macroeconomic conditions; and the moderation of deficit spending as well as borrowing,” CPBRD said.
“In particular, the government’s primary deficit must not exceed the DSPB of approximately -2.0% of GDP to prevent further increases in the debt-to-GDP ratio over the medium term,” it added.
Last August 7, President Ferdinand Marcos Jr. acknowledged the immense debt that the country has garnered over the years including during the COVID-19 pandemic — now at P17 trillion.
However, Marcos said that his administration is working towards bringing down the country’s debt down to a sustainable level.
“We will have enough budget to fund these projects. So long as the country’s money is being used properly,” Marcos said.
“For example, the budget for building classrooms should be really spent on constructing classrooms. If the budget law said two classrooms will be built, then there should be two—not just one. Because that means, someone pocketed funds,” he explained.
READ: Marcos lays out plans to ‘slowly’ reduce P17-trillion national debt
CPBRD released a series of reports on the 2026 NEP on Monday.
According to the research arm, while the average budget utilization rates of some key agencies like the Department of Education were high, there are some programs wherein obligation rates and disbursement rates were low.
Obligation rates (OR) are the or portions of funds allocated for specific projects that have been downloaded to an agency already, while disbursement rates (DR) are the payments made by the government to a contractor for the project.
CPBRD also noted that some government agencies failed “to convert committed or obligated spending into actual production or delivery of public goods and services,” like DepEd’s textbook delivery program which registered a DR of 11 percent in 2023 and 17 percent in 2024.
The body urged Congress to address the mismatch between the physical and financial performance of departments, as some departments “continue to exceed their performance targets even with persisting concerns on anemic budget utilization.”
Earlier, the House officially started deliberating the P6.7 trillion proposed budget for 2026 with the committee on appropriations hearing the Development Budget Coordination Committee (DBCC) report.
The DBCC will be quizzed about how it formulated the National Expenditures Program (NEP) and regarding the state of the country’s finances, including its funding sources.
The 2026 NEP was handed over by the DBM to the House last August 13.
According to a briefer from the department, the largest chunk of the proposed budget will go to education, at P928.5 billion, followed by public works at P881.3 billion, and then health at P320.5 billion.
READ: House formally receives P6.793 trillion proposed budget for 2026
After the top three, the largest allocations go to the following departments:
- Defense (P299.3 billion)
- Interior and Local Government (P287.5 billion)
- Agriculture (P239.2 billion)
- Social Welfare (P277.0 billion)
- Transportation (P198.6 billion)
- Judiciary (P67.9 billion)
- Labor and Employment (P55.2 billion) /apl
(2025/08/18-16:51)
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