The Philippines’ Blockbuster Budget

The Philippines’ 2025 national budget, signed into law just two days before the new year, provides insights into the risks and opportunities for investors in the country in the coming year.

After much delay and debate, Philippine president Ferdinand R. Marcos Jr signed the country’s 2025 national budget into law on 30 December 2024. At a record PHP 6.33 trillion (USD 109 billion), this is the Philippines’ largest-ever budget, with a 10% increase in government expenditure compared to the previous year. Marcos’ successful passage of the bill – two days before the annual deadline – sends a “business as usual” message to foreign investors, while the scale of promised spending suggests that economic growth and development will be top priorities for the country in 2025.

The backstory to the budget’s passage, however, is suggestive of the risks that remain when it comes to investing in the Philippines: Marcos was initially set to sign the new budget before Christmas but deferred following widespread criticism of an earlier version of the budget approved by a Philippine bicameral committee. Public outcry over this version chiefly focused on substantial allocations to infrastructure projects seen to boost the public images of Marcos and his associates ahead of midterm elections in May 2025, as well as increases for corruption-prone cash aid programs at the expense of funding key sectors such as education and healthcare.

Additionally, with the ongoing political rivalry between Marcos and his erstwhile ally (and vice-president) Sara Duterte at an all-time high, the Philippines political agenda looks set to cast a long shadow over infrastructure and investments in other key sectors for the coming year. Politicians might have more incentive than ever to engage in “pork barrel politics” (using state funds for hyper-localised projects meant to boost certain politicians’ public images) as they jostle to secure votes in the upcoming midterm election – a practice that various local politicians have been accused of engaging in over the years. At this juncture, investors should keep a keen eye on political developments in the Philippines and gauge their impact on the local investment environment.

Continued scrutiny of infrastructure spending

Previously in December 2024, the earlier approved version of the budget had drawn extensive public criticism. Critics were particularly vocal against the initial allocation towards the Department of Public Works and Highways (DPWH), which oversees most major infrastructure projects. They claimed that the DPWH’s proposed budget of USD 17.7 billion would primarily bankroll “pork barrel” infrastructure projects that would bolster the public images of Marcos and his associates ahead of the May 2025 midterm election. Infrastructure projects also carry a corruption risk: several local politicians have previously been accused of corruption over their supposed links to public works contractors.

Critics also observed that infrastructure spending appears to have been reshuffled to favour projects associated with the Marcos administration while undermining other projects tied to political rivals. Under the earlier version, some big-ticket infrastructure projects under DPWH had been reassigned to “unprogrammed appropriations” – standby funding for any projects not pre-allocated under a state department’s budget. Projects re-assigned to unprogrammed appropriations would likely face significant delays as they are not considered priority projects for the Philippine administration. Additionally, the Philippines bans spending of public funds 45 days before an election – except for certain pre-approved state departments such as education and health – which could translate to further delays to infrastructure projects scheduled to launch in early 2025. Local news portal Rappler reported that if Marcos had approved the above re-assigning, 41 new infrastructure projects – including several railway developments – might have been defunded by the Philippine government in what could be seen as a bid to undercut pet projects of political rivals.

Ultimately in the final budget, Marcos vetoed USD 446 million earmarked for DPWH projects and slashed USD 2.9 billion in proposed funding for unprogrammed appropriations. That said, DPWH remains the second-largest beneficiary of the Philippine national budget, receiving only 3% less than the funding set aside for the local education sector which according to the Philippine constitution must be the largest recipient of a national budget. DPWH’s overall budget reduction of only 1.6% leaves considerable funding still for infrastructure projects, which will likely as usual in the Philippines be used as a political football in the upcoming elections.

Other corruption risks in social spending

Marcos’ vetoing of several budget lines appears to have alleviated some public concerns around potential funding cuts to key sectors of education and healthcare, which look set to continue growing in the Philippines. At the same time, corruption remains a concern in these same sectors. For example, the earlier version of the budget included a provision to remove USD 1.6 billion in subsidies for the state health insurer PhilHealth, a move that was at least in part driven by corruption concerns at the organisation. For example, in 2020, a PhilHealth ex-legal officer claimed that some executives had pocketed around USD 257 million from the company via fraudulent schemes. However, the proposed subsidy removal drew the ire of several civil society groups, who claimed that PhilHealth would otherwise be unable to adequately cover more than 86 million beneficiaries. Marcos’ finalised budget did not specifically mention subsidies for PhilHealth, though he has stated that the state insurer has enough reserve funds to ensure uninterrupted service. Healthcare investors should watch for any significant developments in government spending for this sector, to better understand how to position themselves and protect their business interests in the event of any changes to state expenditure and subsidy policies. 

Another budget line that had faced significant public opposition was general cash aid programmes, which have been variously criticised as a means of vote buying ahead of the May 2025 midterm election. According to critics, the initial proposed budget sought to channel a portion of funds from conditional incentive programmes (which made disbursements based on a pre-vetted list of eligible recipients) to general cash aid programmes whose recipients are recommended by local administrators, thereby opening up cash disbursements to manipulation and political patronage. Marcos eventually announced that all cash aid programmes would be conditional, though he did not elaborate on how his administration would prevent corruption and uphold political neutrality in these programmes. Allegations of corruption have also plagued previous cash aid programmes in the country. For example, in 2021, the Presidential Anti-Corruption Commission – a now-dissolved agency under the office of then Philippine president Rodrigo Duterte – reportedly received over 7,000 complaints alleging corruption in the distribution of cash aid across the Philippines during the Covid-19 pandemic.

Building investor confidence

The Philippines’ successful signing of its new budget into law before the 2025 year began suggests that the Marcos administration is keen on sending a “business as usual” signal to investors. Its continued focus on funding infrastructure projects and retaining allocations for key sectors such as education and healthcare shows that the country prioritises long-term economic development and job creation. However, there are endemic risks that investors should keep in mind. Bribery and corruption continue to be a key investor risk in the Philippines, including in infrastructure developments and other public procurement. More broadly, since budget allocations are closely associated with boosting the public image of (and securing political support for) incumbents, changes in the Philippine government and presidency would be very impactful for investors. For example, an infrastructure investor’s yields could be affected by cuts in state investments or subsidies, if the investment is in a project associated with one leader who loses their position. Understanding counterparties and gathering informed insight on them, as well as keeping abreast of broader political issues, are key to managing these risks during investments in the Philippines.