DOF: Budget deficit swelled to 8.3 percent of GDP in end-September
MANILA, Philippines—The Philippines’ budget deficit swelled to 8.3 percent of gross domestic product (GDP) as of end-September 2021 as the wider gap in government spending and revenue collection outpaced economic growth during the first nine months, putting pressure on the country’s investment-grade credit ratings.
As a share to GDP, the nine-month budget deficit increased from the average of 6.9 percent in 2020, the latest Department of Finance (DOF) data on Monday (Nov. 15) showed.
The end-September fiscal deficit widened by 29.6 percent year-on-year to P1.14 trillion due to higher, but still below-program, government spending.
Real GDP growth, meanwhile, averaged a slower 4.9 percent in the first three quarters.
The government had programmed a bigger budget deficit of P1.43 trillion for the first nine months of 2021, but the actual gap was 20.1-percent smaller due to underspending.
Officials had blamed the lower-than-programmed expenditures on public goods and services thus far on bureaucratic red tape.
For 2021, the national government’s budget deficit was projected to reach P1.86 trillion, equivalent to 9.3 percent of GDP — the biggest in the country’s history.
Last year, the fiscal deficit soared to 7.6 percent of GDP from the pre-pandemic gap equivalent to 3.4 percent in 2019 due to larger spending to fight COVID-19 while revenue collections declined due to pandemic-induced recession.
In a report last month, ING Philippines senior economist Nicholas Mapa said “the widening deficit suggests that the overall debt of the country continues to pile on beyond the threshold that credit ratings agencies may view as sustainable.”
The latest Bureau of the Treasury data last week showed debt-to-GDP hit a 16-year high of 63.1 percent, above the 60-percent threshold deemed by debt watchers as a manageable level among emerging markets.
The debt-to-GDP ratio, which reflects a country’s ability to repay debt, was at its highest level since the 65.7 percent posted in 2005.
To recall, the national government’s outstanding debt increased 27.2 percent year-on-year to a record P11.92 trillion as of September as it borrowed more to finance COVID-19 response amid the prolonged pandemic.
In the third quarter alone, the budget deficit was equivalent to 9.2 percent of GDP, bigger than 2020’s 7.6 percent and the largest quarterly deficit so far in 2021.
The first quarter deficit was equivalent to 7.4 percent of GDP and the second quarter’s was a higher 8.3 percent.
From January to September 2021, the expenditure effort or share of government spending to GDP rose to 24.6 percent from 23.6 percent in 2020.
The end-September revenue effort, or share of tax and non-tax revenues to GDP, declined to 16.3 percent from 2020’s 16.8 percent.
As the economy gradually recovered, the nine-month tax effort increased to 14.8 percent from 14.5 percent in 2020.
The DOF was already working on a “playbook” of fiscal strategies—including possibly new or higher taxes—which the next administration may implement to raise more revenues and revert the budget deficit to pre-pandemic levels, or about 3 percent of GDP.
