09 Feb 2026

The national budget speech presented on Monday shows the country is to experience a deficit of P26.35 billion, equivalent to 8.9 per cent of GDP, during the 2026/27 financial year.
Presenting the Appropriation Bill (Bill No 1 of 2026), the Vice President and Minister of Finance Mr Ndaba Gaolathe said the deficit would be financed through a mix of domestic and external borrowing,

He however, explained that the country had experienced challenges with regard to external borrowing, resulting in greater reliance on domestic debt instruments and leaving a significant financial gap.

“Total financial requirements are estimated at P22.3 billion, of which P18.6 billion remains unfinanced,” the minister said, stating that this illustrated a structurally overstretched fiscal framework in which expenditure commitments persistently exceed available and realistic resources.

Mr Gaolathe said this was fiscally unsustainable and underscored the urgent need for more credible, disciplined and prudent financial planning.

“Failure to secure the required financial affordability will inevitably lead to accumulation of arrears, an adjustment mechanism that defers rather than resolve underlying fiscal obligations,” he said adding this could lead to increase in public debt burden, raise debt service costs and intensify pressure on the fiscus.

He said during the 2025/26 financial year, the budget was mostly financed through domestic market, and in December 2025, public debt amounted to P90.03 billion of which P55.98 billion was domestic and P34.06 billion in external debt.

“The debt-to-GDP ratio is estimated to reach 38.77 per cent of GDP by March 2026,” the minister said.

Mr Gaolathe said debt levels were expected to increase as the Government Investment Account (GIA) funds were insufficient to announce the projected deficit.

The Vice President said the additional financing would raise total public debt, and guarantees, to 44.66 per cent of GDP by the end of 2026/27 financial year, which will require calibration of statutory debt ceiling set at 40 per cent of GDP.

“While such an increase may generate short-term credibility concerns, these are outweighed by the significantly greater economic risks that would arise from the sharp fiscal consolidation needed to stay within the existing ceiling,” he said.

The Minister of Finance said a well-defined increase in the statutory debt limit, anchored to a credible consolidation plan and supported by structural reforms would be necessary to balance fiscal sustainability with economic growth.

“This approach would create sufficient space for a gradual and orderly fiscal adjustment, while preserving the flexibility required to respond effectively to adverse shocks,” he said.

The budget deficit came as the government expenditure was estimated at P103.58 billion against revenues of P77.22 billion. ENDS