| Executive summary – Takeaways | |
| Indicator | Value |
| GDP (2024) | −3.0% |
| Unemployment (2024) | 27.6% overall; 38.2% youth |
| CPI (Dec‑2025) | 3.9%; projected ~5.9% in 2026 with Q2 breach |
| Monetary Policy Rate (Dec‑2025) | 3.5% |
| Reserves (Sep‑2025) | P50.5bn; 6.4 months of imports |
| FY24/25 Deficit | P11.76bn (4.23% of GDP) |
| FY25/26 Revised Deficit | ~P9.2bn (3.3% of GDP) |
| Debt (Sep‑2025) | ~30% of GDP baseline; risk >40% incl. arrears/gaps |
| Tariffs (from 31 Jul 2025) | US 15% on diamonds (direct/indirect); India 50% |
- Growth under pressure; diamonds still the swing factor. GDP contracted −3.0% in 2024 on a −13.7% diamond slump; 2025 showed a brief mining rebound but remains weak as inventories (~12.0m carats vs allowable 6.5m) delay production ramp‑up. Medium‑term growth sits below potential unless non‑mining lifts and BETP executes quickly.
- Inflation to breach target mid‑2026. CPI ended 3.9% (Dec‑25); upside risks from tariffs, administered prices (fuel, utilities), and exchange‑rate settings. MPC held MoPR at 3.5% by Dec‑25. CPI is projected to exceed 6% in Q2‑2026 before easing back into the 3–6% band in H2‑2026.
- Trade & reserves weaker. Trade deficits persisted through 2024–25 (brief surpluses in Jun–Jul 2025). Foreign reserves fell to P50.5bn (6.4 months of import cover) by Sep‑25 from 7.1 months a year earlier.
- Tariffs bite the diamond channel. New US tariffs (15%) on diamonds (direct/indirect) from 31 Jul 2025 and India at 50% worsen an already soft market (lab‑grown competition, China demand). Short‑term pre‑tariff buying lifted Q3‑2025 traders’ value added, but the outlook remains highly uncertain.
- Fiscal picture: narrower 2024/25 deficit but buffers depleted. FY24/25 deficit P11.76bn (4.23% of GDP) vs P24.73bn projected; arrear payments and cost controls helped. Government Investment Account (GIA) balances are historically low and risk depletion by Mar‑26 without financing.
- 2025/26 revised: lower revenue, smaller but still material gap. Total revenue revised to P68.7bn (from P75.5bn); mineral revenue P10.4bn (from P15.7bn). Total spend P77.9bn; deficit ~P9.2bn (3.3% GDP). Financing leans on P4.7bn net domestic and P17.2bn net external borrowing.
- Debt rising but baseline within statutory ceilings—risks tilted up. Debt near 30% of GDP (Sep‑25); baseline path ~36.8% in 2026/27 then drifting down; however, including arrears/financing gaps could breach the 40% ceiling and push domestic debt beyond its 20% sub‑limit.
- Policy pivot: four priorities. Private‑sector export‑led growth; human & social capital; infrastructure modernisation; digital & innovation—under NDP 12 and BETP. Strong PPP push, e‑procurement by 2026/27, ZBB enforcement, and SOE commercialisation.
- Revenue measures coming. BURS reforms plus new VAT/Income/Tax Administration/Customs Bills (2025); VAT on digital trade from 2026/27; broader debt‑recovery and audit drive; local authorities to grow own‑source revenues.
- FX policy: competitiveness over comfort. 2025 shifts equalised the basket (50% ZAR / 50% SDR), increased the crawl (−2.76%), and widened trading margins; Jan‑26 added asymmetric margins to reward exporters and help reserves. Expect a slightly weaker NEER vs the previous path.
Policy priorities to track in FY26/27
- Private‑sector export push via AfCFTA/SADC/SACU; trade‑enabling infrastructure (corridors, logistics hubs, energy) and PPP pipeline.
- Human capital: curriculum reform, TVET/STEM expansion, employability; health system modernisation; social protection consolidation with means‑testing.
- Infrastructure modernisation: A1 and trade roads; North–South rail rehab; dry ports; Maun airport upgrades; water transfer schemes; renewable/solar rollout under IRP & PPPs; maintenance ring‑fencing.
- Digital & innovation: SmartBots scaling, Village Connectivity, Smart ID, National Retail Payment Switch; R&D partnerships with academia and innovation hubs.
- Public finance reforms: Zero‑Based Budgeting enforcement; e‑procurement by 2026/27; tighter supplementary budgets (reallocations only); ministerial spend audits; PPP model for priority assets.
- Revenue measures: VAT on digital trade from FY26/27; stronger tax debt recovery and audits; four tax/customs bills; SOE commercialisation; local authority own‑revenue push.
Risk map – what could move the numbers
- Diamond channel: weak prices, high inventories, US 15% tariff and India 50% tariff; lab‑grown share ~20–30%—prolonged, lower‑than‑history mineral revenues and delayed production uptick.
- Inflation/FX: administered price adjustments (fuel Sep‑25), wider margins and faster crawl (−2.76%) → import‑price pass‑through; possible CPI breach above 6% in Q2‑26.
- Liquidity: GIA near depletion; arrears risk to suppliers; domestic auctions under‑subscribed; crowding‑out risk for corporates in local debt markets.
- Ratings: 2025 downgrades (S&P BBB, Moody’s Baa1) on macro‑fiscal slippage; further downgrades would raise risk premia and external borrowing costs.
Source: 2026/27 Budget Strategy Paper – Draft (January 2026), Ministry of Finance.
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