Fiscal execution stays broadly on track

From AB Capital's The Opening Bell: Three Moves

Event

The June budget deficit widened 9.4% YoY to P264.3 billion as spending rose 5.5%, faster than the 2.5% revenue increase. For 1H26, the gap reached P786.8 billion, broadly on fiscal program and equivalent to 47.4% of the revised P1.66 trillion full-year ceiling.

View

We think headline fiscal execution remains controlled, although the spending mix is less growth-supportive than the total suggests. Local government unit (LGU) allotments, subsidies, and interest payments rose sharply, while direct national government (NG) disbursements fell 6% in 1H26, limiting the immediate multiplier for domestic demand.

Catalyst

The 2H26 test is whether agencies can convert fiscal space into infrastructure and labor-generating projects without weakening revenue performance. Faster execution would support gross domestic product (GDP) (our base case remains at 3.3% for 2026E), while prolonged oil pressure, slower growth, or higher borrowing costs could widen the deficit and keep local yields elevated.

Action

In our view, the data are neutral for the Philippine Stock Exchange index (PSEi) until spending quality improves. We would favor BDO for balance-sheet resilience, while monitoring DMCI Holdings (DMC) and EEI Corp. (EEI) for evidence of stronger project awards. Rate-sensitive property and REITs remain vulnerable if yields stay high.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.