The Society of Honor by Joe America

By Giancarlo Angulo

This is part 2 of 4 in The Budget Series. Part 1 gave the overview of the budget year. This part opens up the first phase: how the President’s proposed budget, the National Expenditure Program (NEP), gets made.

The question

How is the NEP generated, and who decides what goes into it?

TLDR

• The NEP is built from two directions: a top-down ceiling from the DBCC (revenues, deficit, spending) and bottom-up requests from agencies in two tiers.
• Tier 1 is ongoing programs at the same cost and quality. Tier 2 is whatever fiscal space is left after Tier 1.
• Agencies may submit at most five Tier 2 proposals, ranked one per rank, and each must be implementation-ready.
• For FY2027 the proposed budget is P7,200.2 billion, 21.7% of GDP, with a deficit of 5.1% of GDP.
• This post is accurate as of October 24, 2026.

The NEP is built from two directions at once. The top-down number comes from the Development Budget Coordination Committee (DBCC). The bottom-up requests come from the agencies. The NEP is what is left after the two are made to fit.

Top down: how much can we spend?

The DBCC first sets the macroeconomic assumptions (growth, inflation, the exchange rate, oil prices and interest rates) and then the fiscal program: revenues, the deficit it is willing to run, and from those the spending level. For FY2027 the assumptions were approved on May 25 and the fiscal program on June 16, 2026. The result, from NBM 158, is revenues of P5,205.5 billion, disbursements of P6,900.5 billion, a deficit of P1,694.9 billion (5.1% of GDP), and a proposed budget of P7,200.2 billion (21.7% of GDP). Appropriations and disbursements are different measures: the first is authority to spend, the second is cash paid out in the year. The proposed budget is the ceiling that Congress later cannot raise.

The total is not all free to allocate. DBM says it faced “a very narrow fiscal space” in FY2027, squeezed by automatically appropriated items such as the local governments’ National Tax Allotment shares and interest payments, by newly enacted laws, and by recurring mandatory spending.

Where the automatic lines come from. Automatic appropriations are not decided in the NEP. They come from formulas and obligations in existing laws, and DBM has to fit them in first. For FY2027 the two biggest are the National Tax Allotment (P1,319.8 billion) and interest payments (P1,114.3 billion). At a high level:

• National Tax Allotment. Section 284 of the Local Government Code gives local governments a share of national taxes “based on the collection of the third fiscal year preceding the current fiscal year”, 40% from the third year of the Code. So the FY2027 NEP uses FY2024 collections. NBM 156 says the allotment is based on certifications from the BIR, the Bureau of Customs and the Bureau of the Treasury of actual FY2024 revenue, less authorized deductions, plus projected increases. Because the base is a past year, my reading is that DBM works from collections already certified, not from a forecast of next year’s revenue. Section 285 then splits the pie: provinces 23%, cities 23%, municipalities 34% and barangays 20%. Each province, city and municipality gets its share by population (50%), land area (25%) and equal sharing (25%). The 2026 budget law (Sec. 102) repeats this and names the land area and census data to use. The Supreme Court’s Mandanas-Garcia ruling widened the base from internal revenue taxes to all national taxes, starting with the FY2022 budget.
• Interest payments. Section 31 of Presidential Decree 1177 automatically appropriates “principal and interest on public debt”, the retirement and insurance premiums of government personnel, and called government guarantees. It adds that nothing is spent from them except through regular budgetary allotments, which is why they still need a GARO or SARO (part 3). Unlike the allotment, the interest line is an estimate. DBM’s budget memorandum sets the assumptions it depends on, such as the 364-day Treasury bill rate, the dollar rate and the deficit path. I did not find how the Bureau of the Treasury and the Department of Finance turn those into the number in the NEP.
• The rest. The BARMM block grant, special accounts, net lending and tax expenditures have their own laws. I have not traced them.

How these lines are built, and how they squeeze the fiscal space each year, is a topic for a future post.

Bottom up: what do agencies ask for?

Budgeting uses a two-tier approach.

	Tier 1	Tier 2
What it is	Cash needed for ongoing programs and commitments at the same scope and quality	New or expanded programs
How the amount is set	Forward estimates for 2027 to 2029, formulated by DBM in consultation with the agency	Whatever fiscal space remains: the projected expenditure program less Tier 1
Who decides what gets in	DBM, which also checks the agency’s special account balances, physical progress and absorptive capacity	The agency ranks its proposals; DBM evaluates them against the Budget Priorities Framework

For Tier 2, NBM 157 sets the tests. The proposal must line up with the Philippine Development Plan midterm update and the priorities in the framework. It must be implementation-ready, with documents such as feasibility studies, detailed engineering designs, the annual procurement plan, right-of-way and permits, and proof of coordination with the local government. The agency’s budget utilization rate (disbursements over allotments) is a signal of whether it can actually use new money. Each agency may submit at most five proposals and must rank them in a straight ranking, one per rank, which DBM treats as evidence of the agency’s commitment. For infrastructure agencies, an incomplete set of forms and supporting documents limits the allocation to Tier 1.

The mechanics

Agencies fill in Budget Preparation (BP) Forms and encode them in DBM’s Online Submission of Budget Proposals (OSBP) System v2.0. The record with “Submitted” status is the official submission, and if the printed copy disagrees with what was encoded, the encoded copy prevails. Last year’s actual obligations and the revenue program go in early. Regional Development Councils, civil society organizations and student and faculty associations are consulted between March and April. Then come the technical budget hearings on the Tier 2 proposals and the Executive Review Board hearings (June 1 to 15). On June 30 DBM sends each agency a confirmation letter with its total budget level. The proposed levels are presented to the President and Cabinet (July 10, 13 or 14). From mid-July to early August, DBM finalizes the NEP, the Budget of Expenditures and Sources of Financing (BESF) tables, the staffing summary and the President’s Budget Message, and then prints and submits them. Agencies also prepare an indicative annual procurement plan alongside the proposal so that they can start early procurement once the NEP reaches Congress.

Two of the systems from the preface to part 1 show up here, in the documents. OSBP is the intake. The Unified Reporting System (URS) is where agencies file their budget execution plans, which part 3 describes.

What I’m unsure about

• I relied on the published budget memoranda (NBM 156, 157 and 158). I am not sure where a proposal actually gets cut or changed between the OSBP submission and the NEP, or which step does the most work in practice: the technical hearing, the ERB or the Cabinet presentation. The memoranda list the steps but not what happens in them.
• I could not find who sits on the Executive Review Board.
• On the automatic appropriations, I read the Local Government Code, Presidential Decree 1177, the 2026 budget law and NBM 156 directly. The Mandanas-Garcia point is from secondary summaries; I did not read the decision. I have not found the Treasury’s method for the interest estimate.
• The calendar in NBM 156 lost its row alignment when I extracted the text, so I quote only the dates I could match to a row.

What I’d like readers to do

Correct a number, point me to DBM or COA data I missed, or tell me where the process differs in practice from what is on paper.

Why this series

The problem solving series is about trying to chip at the problems of the Philippines. It is about finding solutions that may work because we will never admit defeat.

Sources

• 1987 Constitution, Art. VI Sec. 15, 24 to 27, 29; Art. VII Sec. 22; Art. IX-D Sec. 2
• DBM National Budget Memoranda: No. 156, No. 157, No. 158, and National Budget Circular No. 599
• FY 2027 National Expenditure Program, DBCC briefing to Congress (August 17, 2026)

The Budget Series

Problem Solving the Philippines: The Budget Series.

• Part 1: Who does what in the national budget, and where the money goes
• Part 2: How the National Expenditure Program is generated (this post)
• Part 3: How the national budget is managed
• Part 4: How the rules of the budget have been tested

Lovingly made with Claude.