Weak Philippine peso seen adding pressure on 2027 nat’l budget

By Justine Irish D. Tabile, Senior Reporter

A SUSTAINED PESO depreciation could drive up the government’s debt-servicing and procurement costs next year, potentially forcing it to reassess spending priorities and rely more heavily on domestic borrowing, economists said.

“A weaker peso could increase the government’s fiscal burden by raising the peso cost of foreign currency-denominated debt servicing, infrastructure loans, and imported goods such as fuel and equipment,” Ser Percival K. Peña-Reyes, a senior research fellow at the Ateneo Center for Economic Research and Development, told BusinessWorld.

“It could also add to inflationary pressures by increasing government procurement and subsidy costs,” he added.

The proposed P7.2-trillion national budget for 2027 assumes an average exchange rate of P60-P62 against the US dollar, according to the Budget of Expenditures and Sources of Financing (BESF).

The peso breached the P64-per-dollar level for the first time on Oct. 27, closing at a record low of P64.17 against the greenback. This marked its 38th record low this year.

On Friday (Oct. 30), the local unit strengthened by 11 centavos to close at P63.74 per dollar from its P63.85 finish on Thursday. Year to date, the peso slid by 7.77% or P4.95 from its P58.79 finish on Dec. 29, 2025.

Despite the potential increase in costs, the government’s budget sensitivity estimates also point to a revenue cushion from a weaker currency.

Under the 2027 BESF, each P1 depreciation against the dollar is estimated to increase revenues by P10.6 billion and disbursements by P4.9 billion, yielding a P5.7-billion improvement in the budget balance.

Francisco Cid L. Terosa, an associate professor and former dean of the University of Asia and the Pacific School of Economics, said a weaker peso would boost Customs collections, as import duties and value-added tax are calculated based on the peso value of imported goods.

“Every one-peso drop against the dollar can yield net fiscal gain of several billion pesos,” he told BusinessWorld in a Viber message.

“Conversion of dollar remittances into pesos can also raise the peso value of goods consumed by overseas Filipino workers’ households, creating a consumption tax cushion that can help prop up government revenues,” he added.

The government projects revenues to increase by 8.29% to P5.21 trillion in 2027, equivalent to 15.7% of gross domestic product (GDP), from the projected P4.81 trillion or 15.8% of GDP in 2026.

However, Mr. Peña-Reyes cautioned against treating additional peso revenues as an overall fiscal gain.

“While peso depreciation may generate additional peso revenues from certain dollar-linked transactions, this should not be interpreted as an overall fiscal gain because higher debt servicing and expenditure costs could offset these benefits,” he said.

In 2027, the government projects disbursements to rise to P6.9 trillion or 20.8% of GDP, from P6.47 trillion or 21.2% of GDP projected for 2026.

The projected revenues and disbursements for 2027 are expected to result in a budget deficit of P1.69 trillion or 5.1% of GDP.

Mr. Terosa said persistent peso weakness could lead the government to rely more heavily on domestic borrowing to mitigate exchange rate risks.

For 2027, the government projects gross borrowings to increase by 20.85% to P3.3 trillion from the P2.73 trillion programmed for 2026.

Of the total, 72% is expected to come from domestic borrowings and 28% from external borrowings.

Mr. Terosa also warned that elevated debt-servicing costs could leave less room for productive spending.

“Debt servicing will be elevated, bloating the share of interest payments in government revenues. Consequently, budget flexibility will be restricted and fiscal space for priority investments will shrink,” he said.

“Capital outlays can be reprioritized and spending can be tightened, constraining the capacity of the government to stimulate the economy and raising opportunity cost for development,” he added.

For Mr. Peña-Reyes, a peso that remains weaker than the assumed range would warrant a review of the government’s exchange rate assumptions, borrowing requirements and expenditure priorities.

“It should strengthen revenue collection, build adequate provisions for foreign-currency debt payments, and improve spending efficiency,” he said.

He added that non-essential spending could be rationalized to preserve allocations for social services, infrastructure, and other priority economic programs.

“The government should also maintain sufficient fiscal flexibility to respond to further exchange rate volatility without unnecessarily increasing the deficit,” Mr. Peña-Reyes said.