‘Fiscal tightening a drag on growth’

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March 24, 2026 | 12:00am

MANILA, Philippines — Aggressive fiscal tightening at the start of the year is emerging as a key drag on the Philippines’ near-term growth outlook, with Nomura Global Markets Research warning that weak government spending and rising external risks could weigh on economic momentum.

In a report, Nomura said “fiscal tightening intensified at the start of the year” and is likely to “point to a further drag in near-term growth momentum,” particularly as the ongoing Middle East war adds downside risks.

The shift in fiscal position was stark. Data from the Bureau of the Treasury (BTr) showed that the government swung to a P165.4-billion surplus in January from a P313.2-billion deficit in December, a reversal that Nomura attributed mainly to a sharp pullback in spending rather than stronger revenues.

“While this swing is attributable to tax revenue growth remaining positive, as BTr has emphasized (though slowing sharply), we think the bigger driver was the sharp drop in spending growth,” the report said.

Spending data underscored the extent of the tightening.

Nomura noted that non-interest government spending growth “plunged to -40.3 percent year-on-year, a record low and far worse than the -7.8 percent average in the second half of 2025,” signaling a deeper-than-expected contraction in public expenditure.

The report linked this decline to lingering issues from last year, including the impact of the flood control corruption controversy and delays in project implementation.

“The lack of pre-procurement activity last year will contribute to weak budget disbursement in the coming months before the government implements catch-up spending plans,” Nomura said.

This weak fiscal impulse comes at a critical time for the economy. Following a worse-than-expected gross domestic product (GDP) growth of just three percent in the fourth quarter of 2025, Nomura said the January spending slump suggests that any recovery in the near term could be limited.

As a result, the firm flagged growing risks to its full-year outlook, warning of “rising downside risks to our 2026 GDP growth forecast of 5.3 percent, which is well below potential.”

External headwinds are compounding these concerns. Nomura said the Philippines remains “relatively heavily exposed” to the fallout from the Iran conflict, which could further dampen growth prospects through higher oil prices, trade disruptions and financial market volatility.

Taken together, the combination of fiscal tightening and geopolitical risks paints a more cautious picture for the economy, with growth likely to remain subdued in the near term even as the government prepares to accelerate spending later in the year.