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Philippine infrastructure spending fell for the fourth straight month in October, as disbursements for the Department of Public Works and Highways (DPWH) continued to decline amid the corruption scandal and adverse weather.

The latest data from the Department of Budget and Management (DBM) showed expenditures on infrastructure and other capital outlays dropped by 40.1% to PHP 65.9 billion in October from PHP 110 billion a year ago.

Month on month, it also fell by 16.2% from PHP 78.7 billion in September.

October marked the fourth straight month that expenditures fell on an annual basis, since the 25.3% drop in July after a corruption scandal involving flood control projects was made public.

The scandal has dampened economic activity and public spending, particularly on infrastructure.

The DBM said the year-on-year drop in infrastructure spending “resulted largely from the contraction in DPWH disbursements.”

The DBM noted that the slower budget release for public works was due to “non-submission of billions from contractors amid ongoing validation of the status of implementation and completion of flood control projects.”

The DPWH is at the center of a corruption scandal after department officials, lawmakers and contractors were accused of getting kickbacks from flood control projects that were either nonexistent or substandard.

The pending release of final payments due to delays in securing the Bureau of Internal Revenue Tax Clearance by contractors also factored in the drop in disbursements, the DBM said.

Contractors must obtain an updated tax clearance before final settlement of any government contract; otherwise, the contract may be suspended.

“(This includes) delays in the renewal of contractors’ Philippine Contractors Association Board (PCAB) licenses, which affected the submission of progress billings by contractors and subsequent processing of payments,” the Budget department said.

Adverse weather conditions also weighed on the release of the DPWH infrastructure budget, the DBM said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said political noise around infrastructure projects, particularly flood control, pulled down spending in October.

10-month period

In the first 10 months, overall infrastructure and capital outlay disbursements stood at PHP 943 billion, down 13.7% from PHP 1.09 trillion a year ago.

This accounted for 62.33% of the PHP 1.51-trillion full-year program.

“Infrastructure spending contracted since the onset of the flood control issues of the DPWH, which resulted in delays in the settlement of progress billings for its completed infrastructure projects,” the DBM said.

Data from the DBM showed that overall infrastructure disbursements, which include infrastructure components of subsidy and equity to government corporations and transfers to local government units, slipped by 11.5% to PHP 1.13 trillion in the end-October period from PHP 1.28 trillion a year ago.

For the rest of the fourth quarter, the DBM said lower infrastructure spending is expected to further weigh on overall government disbursements.

At the same time, the DPWH is ramping efforts to address corruption issues by creating a transparency portal that provides information on the agency’s projects.

The DPWH is also discontinuing defective flood control projects due to poor planning, as well as deleting duplicate projects.

In the coming months, Mr. Ricafort said infrastructure spending is expected to recover by early 2026 as part of the government’s catch-up spending plan.

“For the coming months, infrastructure spending could pick up in view of the catch-up spending plan by early 2026, hinged on the policy priority on anti-corruption measures/reforms and other reforms to further improve governance standards,” he said in a Viber message on Dec. 26.

Economic managers have insisted the spending slump is only temporary as reforms and investigations are underway.

Overall government disbursement reached PHP 4.91 trillion as of end-October, up by 3.9% from PHP 4.73 trillion in the same period last year. This represented 80.8% of the PHP 6.08-trillion full-year expenditure program. — Aubrey Rose A. Inosante, Reporter

Philippine business groups are urging lawmakers to pass a general tax amnesty and review the value‑added tax (VAT) on electricity as part of their tax wish list for 2026.

British Chamber of Commerce Philippines Executive Chair Chris Nelson said the group supports the proposal of Senate Finance Committee Chair Sherwin T. Gatchalian to pass a general tax amnesty.

“This gives the opportunity for those taxpayers who may have unpaid or outstanding liabilities to move forward amicably,” he said during a phone call with BusinessWorld.

The measure is among President Ferdinand R. Marcos, Jr.’s legislative wish list for the 20^th Congress. Bills seeking a one‑time general tax amnesty have been filed in both the Senate and the House of Representatives and are still pending at the committee level.

Senate Bill No. 60, filed in July by Mr. Gatchalian, aims to grant a one-time reprieve on unpaid internal revenue taxes for the taxable year 2024 and prior years.

The measure aims to give delinquent taxpayers a “fresh start” while broadening the government’s tax base and strengthening revenue administration.

Mr. Nelson also called for tariff adjustments, particularly a higher minimum access volume (MAV) quota for pork exports to the Philippines, to ease supply shortages and curb inflation.

He said the Philippines’ MAV quota was set in the 1990s for a population of 90 million, though it is now near 120 million, and warned that limits on food imports risk driving prices higher.

The European Chamber of Commerce of the Philippines (ECCP) also pressed lawmakers to fast-track priority measures, including “the passage of a General Tax Amnesty to broaden the tax base and encourage voluntary compliance.”

Executive Secretary Ralph G. Recto earlier said the government is preparing a tax amnesty to address provisions vetoed in 2019, when then-President Rodrigo R. Duterte struck down the general tax amnesty under Republic Act No. 11213 but retained the estate tax amnesty.

The International Monetary Fund has frowned upon the administration’s proposed general tax amnesty, saying that it could lessen regular voluntary tax compliance.

Meanwhile, the ECCP also backed priority bills endorsed by the Legislative-Executive Development Advisory Council, including amendments to the Bank Deposits Secrecy Law and the Anti-Money Laundering Act.

The amendments to the bank secrecy law allow the Bangko Sentral ng Pilipinas to examine the accounts of bank officers and employees involved in illegal financial activities. The House of Representatives has passed the measure on third and final reading.

“Ensuring the full and effective implementation of the CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) Act, the Capital Markets Efficiency Promotion Act, and the proposed Mining Fiscal Regime, to provide investors with a stable, predictable, and competitive fiscal framework,” the group said.

The ECCP said investor confidence could be boosted by expanding renewable energy incentives, creating a carbon credit facility, and ensuring a stable mining fiscal regime to position the Philippines in the global critical minerals supply chain.

Amnesty for exporters

Meanwhile, Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis called for a one-time amnesty for exporters in their cases with the Bureau of Customs.

“What we would like is an amnesty in Customs. Since its establishment, Customs has never had an amnesty unlike the BIR (Bureau of Internal Revenue),” he said in a phone call on Dec. 23.

“This would help clear cases that cannot be prosecuted and allow a one‑time amnesty to clean up records. Otherwise, these cases can be a source of graft,” Mr. Ortiz-Luis said.

He also noted the high electricity and fuel costs in the Philippines, which are significantly higher than those of its neighboring countries.

“Maybe it’s high time to remove taxes (in electricity) so our electricity costs can go down,” Mr. Ortiz-Luis said in Filipino.

Similarly, Philippine Chamber of Commerce and Industry (PCCI) President Enunina V. Mangio is calling for the government to review the VAT on electricity.

“We also recently called for the review of VAT on electricity as this directly affects inflation, household spending, and business costs,” she said in a Viber message.

Finance Undersecretary Karlo Fermin S. Adriano earlier said the government collected around PHP 44 billion to PHP 45 billion in VAT on electricity in 2024.

“For 2026, PCCI’s tax priorities center on measures that lower the cost of doing business, improve predictability, and strengthen our country’s competitiveness in the region,” Ms. Mangio said.

The group said it will continue to monitor legislative developments and, hopefully, will be signed into law as a priority legislative measure by Mr. Marcos.

Meanwhile, the German-Philippine Chamber of Commerce and Industry (GPCCI) said that enhancing and reforming tax administration is crucial, rather than introducing new incentives and laws, and should be among the government’s key priorities to strengthen the country’s investment climate in 2026.

“The necessary laws, circulars, and incentive frameworks are already in place. What investors need most is clarity, predictability, and consistent implementation,” GPCCI President Marie Antoniette E. Mariano said in a statement to BusinessWorld.

Ms. Mariano said reliable application of existing rules significantly improves investor confidence.

The Marcos administration earlier pledged not to introduce new taxes.

Digitalization

At the same time, business groups are urging for broader government digitalization as persistent delays and uncertainty continue to challenge local and foreign firms.

“Most important is accelerating full digitalization and administrative reforms that make tax compliance easier rather than introducing new revenue-raising measures that could dampen investment sentiment,” Ms. Mangio said.

The ECCP urged the government to accelerate the rollout of e‑invoicing and support the passage of the Digital Payments Act.

She said these are critical to modernizing tax administration, improving compliance, and lowering the cost of doing business.

“We are very much committed to digital transformation. In that respect, we’d like to see how the system can be further digitalized to reduce paperwork and bottlenecks. I think the government has made a commitment,” Mr. Nelson said.

He added that electronic invoicing, one of the initiatives, would capture real‑time transactions and accelerate processes.

GPCCI called for more transparent digitalization, including fewer bureaucratic requirements, faster tax rulings, and quicker dispute resolution.

“Transparent and well-managed tax audits, complemented by efficient dispute resolution mechanisms, benefit the taxpayer and the government alike, play a key role in improving the countries competitiveness,” said Dr. Marian Majer, GPCCI Policy and Advocacy Chairperson.

American Chamber of Commerce in the Philippines Executive Director Ebb Hinchliffe said one of the key priorities would be the fast‑tracking e‑invoicing and digital compliance.

“Support the BIR’s 2024-2028 digital roadmap while ensuring a pragmatic rollout of e‑invoicing,” he said in a Viber message.

Cross-border services

The ECCP also reiterated its call to reconsider Revenue Memorandum Circular (RMC) No. 05-2024, which sets out the tax treatment of cross-border services.

“If left unchanged, the issuance could significantly increase compliance costs and discourage cross-border service providers from operating in or expanding into the Philippine market,” it said.

GPCCI raised concerns over cross‑border transactions, citing uncertainties under RMC No. 5‑2024 and backlogs in tax treaty rulings. It urged the government to prioritize clearing the backlog, and provide “clearer guidance on the tax treatment of such transactions to reduce compliance risks for investors.”

The group said resolving these issues would reduce compliance risks and bolster foreign investment. — Aubrey Rose A. Inosante, Reporter

The Philippines should sustain its gradual fiscal consolidation to strengthen its fiscal space and external balance, and ultimately lower its debt-to-gross domestic product (GDP) ratio to its target, the International Monetary Fund (IMF) said. 

“Over the medium term, the authorities should implement gradual fiscal consolidation, in line with their targets, to reinforce fiscal space and support external balance,” the IMF said in a report on its Article IV Consultation with the Philippines. 

“With no new tax policy measures, staff’s baseline projections for 2027 (to 2028) assume the consolidation will be achieved largely through lower spending,” it added. 

The Legislative-Executive Development Advisory Council (LEDAC) included the excise tax on single-use plastics and the extension of the general tax amnesty in its list of 44 priority bills for the 20th Congress. 

Both measures are pending in both chambers. The House of Representatives having nine pending bills proposing an excise tax on single‑use plastics, while the Senate has four similar measures. 

Earlier, Finance Undersecretary Karlo Fermin S. Adriano said that the proposal is primarily not a tax bill but an environmental measure to curb the use of plastics. 

Mr. Adriano has said at a PHP 100-per-kilogram excise tax, the resulting revenue will be PHP 8 billion. 

However, the IMF frowned upon the administration’s proposed general tax amnesty, saying that it could lessen regular voluntary tax compliance. 

“Implementing voluntary disclosure programs should be preferred,” it said. 

Earlier this month, House approved on third and final reading the bill to extend the coverage of the estate tax amnesty to the estates of individuals who died on or before Dec. 31, 2028. 

The IMF also urged the Philippine government to adopt “concrete and durable” tax and spending measures to prevent potential cuts on its primary expenditures. 

“Underpinning MTFF (medium-term fiscal framework) targets with concrete tax and expenditure measures would further improve transparency and confidence in the fiscal targets,” the IMF said. 

“The authorities can also consider embedding their fiscal targets within a formal and well-designed fiscal rule to enhance their credibility, while minimizing pro-cyclical fiscal policies,” it added.

The IMF also said the government should prioritize reforms in its tax administration, particularly by improving compliance risk management and leveraging data analytics. 

The Philippines could likewise work on improving the efficiency of its value added tax (VAT), including reducing VAT exemptions on dwelling ownership, or introduce excise taxes on unhealthy food and beverages, it added. 

However, the government earlier said it does not plan to introduce new taxes on top of the LEDAC’s proposed measures as part of the administration’s fiscal consolidation efforts. 

“They do not plan to implement additional tax policy measures, but efforts to digitalize tax administration and stricter enforcement of tax compliance should continue to support revenue mobilization,” the IMF added. 

Meanwhile, the IMF noted that a favorable interest rate-growth differential will allow the country bring down the debt-to-GDP ratio. 

“Staff projects national government debt to decline gradually to about 60% of GDP by 2030, supported by a favorable interest rate-growth differential,” it said. 

As of end-September, the National Government (NG) debt as a share of GDP climbed to 63.1% from 60.1% in the same period last year. This exceeds the 60% threshold deemed sustainable for developing countries. 

The Department of Finance projects the NG debt-to-GDP ratio to settle at 61.3% by yearend, before eventually easing to 58% by 2030. — KKC

The country’s external debt service burden fell to $10.08 billion as of end-September due to lower principal and interest payments, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Based on BSP data, the debt service bill on foreign borrowings came in at $10.08 billion in the nine-month period, dropping by 21.16% from $12.785 billion in the same period in 2024.

This was the fourth month in a row that the country’s external debt service burden posted an annual decline.

Broken down, principal payments fell by 39.05% to $4.168 billion as of September from $6.838 billion in the comparable year-ago period.

On the other hand, interest payments dipped by an annual 0.59% to $5.912 billion at end-September from $5.947 billion previously.

“Lower year-on-year foreign debt principal payments may have to do with reduced maturities of external debts (as) most have long-term maturities,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Mr. Ricafort also noted that the US Federal Reserve’s rate cuts since last year has lowered the Philippines’ interest payments.

The Fed has so far delivered a total of 175 basis points (bps) in cuts since September 2024, including its 25-bp cut earlier this month that lowered its target rate to the 3.5%-3.75% range.

The debt service burden represents principal and interest payments after rescheduling, according to the BSP.

This includes principal and interest payments on fixed medium- and long-term credits, including International Monetary Fund credits, loans covered by the Paris Club and commercial bank rescheduling, and New Money Facilities.

It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, the debt service data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.

In the January-to-September period, the debt service burden as a share of gross domestic product (GDP) fell to 2.9% from 3.9% in the previous year.

Meanwhile, the country’s outstanding external debt reached $149.093 billion as of September, climbing by 6.77% from $139.643 billion a year ago.

Of the total, $96.298 billion came from the public sector, while $52.796 billion is private sector debt.

This brought the external debt as a percentage of GDP to 30.9% in the nine months to September from 30.6% in the same period last year.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

The central bank gathers data on external debt through reports submitted by borrowers, banks, and major foreign creditors.

Mr. Ricafort said fiscal policy and governance reforms could lessen the National Government’s (NG) reliance on domestic and foreign borrowing as a means to cover the country’s budget deficit.

“Fiscal reform, tax reform, anti-corruption (and) good governance reform measures would help narrow the budget deficit and, in turn, reduce the need for the NG to borrow more locally and from abroad to finance the budget deficit,” he said.

For this year, the NG plans to source at least 81% or P2.11 trillion of its P2.6-trillion borrowing program from local lenders, and 19% from foreign sources. — Katherine K. Chan

Finance Secretary Frederick D. Go is confident the economy will be back on track by the first quarter, once individuals linked to the flood control scandal are swiftly prosecuted.   

In a Dec. 18 briefing with reporters, Mr. Go said government revenues may rebound in early 2026, depending on the swift resolution of cases related to the corruption mess.

“If we’re able to successfully prosecute certain personalities, then the faster the effect will be on economic growth in the first quarter. But to me, I’m confident that we will get back on track in the first quarter,” he said.

In the third quarter, the country’s economic growth slumped to 4%, the slowest expansion seen in over four years. In the nine-month period, gross domestic product growth averaged 5%, below the government’s 5.5-6.5% target.   

A wide-scale controversy linking Public Works officials, lawmakers and private contractors to multibillion-peso corruption in anomalous flood control projects dragged government spending and consumption.

“The whole key to all of this is for us to get over the hump of this public works investigation. The sooner people move on from it, the better for the economy and the better, therefore, for revenue collection,” Mr. Go said.

“So, if all goes according to plan, then we should be looking at a much brighter 2026 in the first quarter.”

A decline in infrastructure spending dented government revenue collections.

Mr. Go said the Bureau of Customs (BoC) and the Bureau of Internal Revenue (BIR) saw “softer” revenue collection this year due to the corruption probe, as well as the four-month ban on rice imports.

“Growth is growth. (Collections were) softer versus the DBCC (Development Budget Coordination Committee) targets,” he said.

Total revenue collection during the January-to-October period slipped by 1.13% to P3.81 trillion, which is only 84.25% of the P4.52-trillion revised full-year program. The target is 2.23% higher than the P4.42-trillion actual collection in 2024.

“For Customs, we banned, for example, the importation of rice for practically four months out of 12 months of the year. It definitely affected Customs collections,” he said.

He also attributed the lower Customs revenue to the adverse weather conditions that trimmed working days.

BoC Commissioner Ariel F. Nepomuceno last week said revenue collection may fall short of its full‑year goal.

BoC’s emerging revenue forecast for 2025 is P939.4 billion, 2% below the P958.7-billion full-year goal.

“Every time the peso depreciates, it usually results in higher Customs collections because imports are dollar-based. Maybe December should be a good month for collections,” Mr. Go said.

The peso has breached the P59-a-dollar mark several times since November and sank to a record low of P59.22 on Dec. 9.

Meanwhile, Mr. Go said the BIR’s collections for the month of December seem “encouraging.”

“For BIR, I think it was doing very well for the first half of the year and then slowly softened as time went on. But fortunately, it still records an increase in collections every month,” Mr. Go said.

In the first 10 months, BIR collections rose by 9.55% to P2.65 trillion, accounting for 82.35% of the P3.22-trillion full-year target.

Mr. Go said it is unlikely that there will be any adjustments to the revenue targets.

Economic managers met this month to review the macroeconomic assumptions and targets but have yet to release a statement.

Analysts say the economic recovery and stronger revenue collections by early 2026 remain doable if catch‑up government spending is paired with credible anti‑corruption and governance reforms.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the economic rebound next year is possible.

“(Government spending) is an important driver of faster economic growth. This was the drag in the third quarter due to political noise related to anomalous flood control projects,” he said.

Governance reforms, alongside fiscal measures, could also help narrow the budget deficit and reduce reliance on borrowing, Mr. Ricafort said.

“The revenue collection may continue to improve, given the large increases in activity during the holiday season and possibly next year as well,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said in a Viber message.

However, he flagged the loss of confidence in the government due to the corruption scandal as a potential downside risk, which could lead to lower investments.

“Households, especially those earning through the informal sector, may find it bothersome to file taxes given the damaged reputation on the public budget,” he said. — Aubrey Rose A. Inosante

Emerging risks to inflation may limit the Philippine central bank’s ability to ease further in 2026 despite an expected economic slowdown, analysts said.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said another 25-basis-point (bp) cut signaled by the central bank for 2026 would not suffice to spur the economy.

“A final 25-bp rate cut would help at the margin, but it may not be enough on its own to materially lift growth if fourth-quarter (growth) comes in around 3.8%,” he told BusinessWorld in a Viber message.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said gross domestic product (GDP) growth in the fourth quarter might settle at 3.8%, easing from 4% in the third quarter.

If realized, it would be the slowest growth rate since 3% in the third quarter of 2011 and bring full-year expansion to 4.7%, under the government’s 5.5-6.5% target.   

However, Mr. Rivera said the central bank’s current easing cycle will likely end soon as food prices and peso’s weakness pose inflationary risks.

“As for easing space, the BSP likely has limited room left,” he said. “With growth projected to stay below target but inflation risks still present (from food prices and the (peso’s) depreciation), BSP must balance support for growth with price and financial stability.”

ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur and economist Arindam Chakraborty noted that the peso’s recent performance against the dollar has not affected inflation, amplifying calls for another 25-bp cut in February. 

“In our view, the subdued growth and inflation prospects suggest there is room for further rate cuts,” they said in a note released late on Thursday. “We anticipate another 25-bp rate cut in Q1 2026, bringing the terminal policy rate to 4.25%.”

The peso has hit the P59-per-dollar several times since November, even slumping to a fresh low of P59.22 against the greenback on Dec. 9.

The Monetary Board last week lowered key borrowing costs for a fifth straight meeting by 25 bps to an over three-year low of 4.5%, citing subdued inflation and slowing growth. It has so far delivered a total of 200 bps in cuts since it began its easing cycle in August 2024.

Mr. Remolona earlier said they might cap off their easing cycle with a final 25-bp rate cut in 2026 if economic figures turn out worse than they anticipated.

ING Chief Economist and Regional Head of Research for Asia‑Pacific Deepali Bhargava said benign inflation could allow the BSP to ease further but warned that real interest rates may climb if inflation rates fall below expectations.

“Inflation should remain within central bank targets in 2026, allowing rate-cutting cycles to continue in… the Philippines… and supporting a generally easier monetary stance across the region,” he said in a statement.

“However, ING cautions that if inflation were to undershoot expectations, real interest rates could rise again, creating a more challenging environment for both business investment and consumer demand.”

Headline inflation slowed to 1.5% in November from 1.7% in the previous month and 2.5% in the same month last year, bringing inflation to an average of 1.6% in the 11-month period.    

ING expects inflation to return within the central bank’s 2-4% target next year at 3%, a tad slower than the 3.2% revised forecast of the BSP.

Citi Research said the central bank might ease more in 2026 as the rise of jobless Filipinos could pull down consumption and inflation.

“With a cooling job market possibly dragging down consumption and inflation, we still expect a final 25-bp cut in (February 2026) to 4.25%, with still some (albeit reduced) risk of a further 25-bp cut,” it said in an e-mailed note on Friday.

The country’s unemployment rate climbed to a three-month high of 5% in October from 3.8% in September and 3.9% in the same month last year.

Governance

Meanwhile, analysts said the economy would need fiscal action and governance reforms on top of monetary policy easing to fully recover.

“Gradual cuts could still surprise, but don’t rely on rates alone,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., told BusinessWorld via Viber. “Real boost will come if (the) government speeds up action on governance, fiscal discipline, and sector reforms. Without that, impact stays limited amid political noise and corruption concerns.”

Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., also noted that the stock market’s recent recovery is also not enough to offset slower government spending and waning investor confidence.

“Despite recovery in the equities market and the recent short rallies observed, these factors won’t be enough to offset the decline in government spending and investor sentiment,” he said in a Viber message. “A large part of GDP is government spending, hence declines in this sector will have a large impact on growth indicators.”

On Friday, the Philippine Stock Exchange index climbed by 0.78% or 46.72 points to end at 6,036.72. Week on week, it rose by 87.5 points from its 5,949.22 close on Dec. 5.

“The BSP can release money to the financial system, cut interest rates, but if the fiscal sector is tight, economic growth can only go so far,” he added.

President Ferdinand R. Marcos, Jr. earlier vowed to boost government spending in the fourth quarter in a bid to support economic growth. — Katherine K. Chan