Former Finance Secretary Benjamin E. Diokno warned that the proposed ₱7.2-trillion national budget for 2027 will be exceptionally tight, constraining government flexibility as economic growth slows and borrowing costs escalate.

Speaking at the Kapihan sa Manila Bay forum on Wednesday, Aug. 12, Diokno said the newly transmitted spending plan leaves little elbow room for discretionary expenditures.

Diokno, who now serves on the Bangko Sentral ng Pilipinas’ Monetary Board, cited a sharp deceleration in gross domestic product (GDP) expansion as the primary driver of the fiscal strain.

While the Marcos administration kicked off with robust growth momentum in 2022, it has since drifted from the fiscal targets originally drafted for its six-year term.

He pointed out the stark contrast between the stronger 8.1 percent growth in the first quarter of 2022 and the post-pandemic low in the second quarter of 2026.

This sharp slowdown, Diokno argued, has undermined the government’s ability to generate necessary revenues, making current budget projections appear overly rosy.

“Revenue assumptions seem overly optimistic—because slower economic growth should mean lower revenues. However, in this case, revenues are expected to be higher, so that seems impossible to happen,” Diokno noted.

Domestic growth has taken a hit from the recent flood control controversy and ongoing tensions between the United States and Iran. Growth pressures stemming from these developments lowered the government’s GDP growth goals to a minimum of 3.5 percent in 2026 and at least 5 percent annually through 2029.

Budget documents likewise showed that the Marcos administration is sticking to fiscal consolidation, targeting ₱5.21 trillion in total revenues in 2027—though this is down from the ₱5.37 trillion previously projected. The 2026 revenue target was also trimmed to ₱4.81 trillion from ₱4.98 trillion.

Diokno expressed concern that the combination of slow growth and rising borrowing costs leaves “little room for waste, little room for delay or weak execution.”

This financial pressure is exacerbated by the Philippines’ recent graduation to long-awaited upper-middle-income (UMIC) status.

While Diokno recognized that the milestone provides “bragging rights,” it carries a distinct fiscal disadvantage: the loss of low-interest, concessional loans from development and bilateral partners.

He explained that institutions like the Washington-based World Bank and the Manila-based Asian Development Bank (ADB) will adjust interest rates upward. “This means we should be more careful now in using what we have borrowed,” he stressed.

Diokno also flagged a concerning trend in infrastructure spending. Despite the Build Better More (BBM) initiative, the budget reveals a downward trajectory for infrastructure investment as a percentage of GDP. From 5.17 percent this year, Diokno noted that it drops to 4 percent in the new budget and eventually to 3.96 percent.

“That is not the right solution,” he remarked, pushing for sustained investment to ensure future competitiveness.

With the budget now under congressional review, Diokno stressed that every allocation must be “carefully crafted, with programs and projects prioritized according to their readiness,” economic impact, and long-term contribution to growth to survive this restrictive fiscal environment.