BMI View: Given President Duterte's recognition of the need to address military capability gaps identifiedunder the former government's modernisation plan; his apparent favouring of a more independent foreignpolicy; and his vow to address internal security threats, Philippine defence spending looks set see steadygrowth in coming years - facilitated by robust overall real GDP expansion. Modernisation efforts will focuson counterterrorism/insurgency in the short term, but increasingly shift towards the naval and air powersegments over the longer term, as Manila works to boost protection of its air space and waters. Amiddefence spending increases, growing international involvement with the local sector and strongergovernment support for its development, the outlook for Philippine military manufacturers is brightening.
For 2018, the Duterte administration has proposed a 5.5% y-o-y increase in its core defence budget, toPHP145bn (USD2.9bn). Similar to previous years, around PHP25bn is to be allocated for militarymodernisation.