Ramping up spending for defense and the military would slash budgets for other sectors in the Philippines, where the government’s budget deficit remains higher than pre-pandemic levels, according to the think tank Capital Economics.

“Defense spending across Asia is set to rise over the coming years, driven in part by increased pressure from the United States (US) for its allies to shoulder more of their own security costs,” Capital Economics senior Asia economist Gareth Leather said in an Aug. 27 report.

According to the President’s Budget Message for the ₱6.793-trillion 2026 national budget proposal, ₱430.9 billion will be allocated to the defense sector “to bolster domestic security and modernize our defense capabilities.”

The bulk of next year’s defense budget would go to the Department of National Defense (DND), amounting to ₱291.6 billion, of which ₱286.9 billion would be for the Armed Forces of the Philippines (AFP).

According to reports, the 2026 defense budget would be nearly 14 percent higher than this year’s allocation.

“Spending on defense is relatively low across most of Asia. Most countries in the region allocate less to defense than the current NATO [North Atlantic Treaty Organization] average of two percent of GDP [gross domestic product],” Leather noted.

Leather forecasts that defense spending “is likely to increase relative to GDP over the coming years” across the region, with US President Donald J. Trump’s return to the White House and “his demands that America’s allies contribute more to their own security” as catalysts.

“The worsening security environment in the region is also playing a role, including China’s increasingly aggressive posture toward Taiwan and in the South China Sea, heightened tensions on the Korean peninsula, and deteriorating relations between India and Pakistan. Even smaller disputes, such as the recent clashes on the Thai-Cambodian border, are adding to pressures to spend more,” he added.

“In practice, we think most countries will increase defense spending by around 0.5 to 1.5 percent of GDP over the next couple of years. That would provide a meaningful boost to demand in the short to medium term,” he said.

However, Leather said the Philippines and Pakistan are facing the “most pronounced” fiscal constraints in the region.

In these two countries, “any substantial increase in defense spending would likely need to be matched by reductions in other areas,” Leather said.

In a report last year, the US Department of Commerce’s International Trade Administration (ITA) noted that the Philippine defense market is driven by the ongoing AFP modernization program, which runs through 2037 and is supported by significant foreign, including US, military financing (FMF) of around $40 million annually.

“With the current challenges faced by the Philippines such as the territorial dispute with China in the West Philippine Sea, the DND reiterated that air power is a very important component in its joint forces especially in territorial defense. Enhancing the Philippine Air Force’s (PAF) air power could be achieved by adapting to current trends and technologies, such as unmanned aerial systems, artificial intelligence (AI), and space capabilities,” ITA said.

This month, the US-ASEAN Business Council (USABC) brought its largest-ever aerospace, defense, and security (ADS) mission to the Philippines, with 26 leading US defense and aerospace firms participating.

“The mission built on the momentum of Balikatan 2025 and reaffirmed mutual commitments to defense modernization, aerospace innovation, and regional security” on the back of “robust private-sector support for the Philippines’ development and defense priorities,” USABC said in a statement.