Underspending’s good news: 2021 budget deficit smaller than projected
MANILA, Philippines—The Philippines is poised to end 2021 with a budget deficit smaller than programmed because of underspending, according to economic managers sitting in the Development Budget Coordination Committee (DBCC).
Budget Undersecretary Rolando Toledo told a press briefing on Tuesday (Dec 14) that the emerging full-year budget gap of P1.61 trillion, equivalent to 8.2 percent of gross domestic product (GDP), will be narrower than the original program of P1.89 trillion or 9.5 percent of GDP.
As the Philippines emerges from the most stringent lockdown restrictions and reopened more economic sectors, year-to-date revenues were on the rise, prompting the DBCC to project P3.3 trillion in collections, higher than the P2.88-trillion goal.
On the other hand, actual government spending on public goods and services were seen reaching P4.63 trillion by yearend, lower than the P4.74-trillion expenditures target.
“Disbursements are a direct factor of implementation,” said Tina Rose Marie Canda, Department of Budget and Management (DBM) officer in charge.
“At the moment, agencies are still in that adjustment period where implementation is affected by the pandemic,” Canda said.
Canda said agencies that rolled out big-ticket infrastructure projects were the “worst-hit” by underspending. Also, “some of our disbursement patterns, for instance, for travel or training [have] been put on hold,” she added.
Canda nonetheless said that “these past two months, especially after November, we saw a huge, significant jump in disbursements,” although figures were not yet available.
Canda explained that agencies likely fast-tracked spending as the end of the year drew near and this year’s budget funds could expire. The legislature, however, had extended the validity of the P4.51-trillion 2021 national budget until 2022.
Passed by both chambers of Congress was the P5.02-trillion 2022 general appropriations bill, while the DBCC on Tuesday approved a P5.24 trillion proposed budget for 2023.
Despite slow budget utilization among agencies, Canda said the economic team was optimistic that spending would quicken alongside further reopening of the economy and post-pandemic rebound.
“When we loosened our quarantine restrictions, we saw a significant improvement in disbursement rates,” said Canda.
“We were probably having around 35-40 percent in the initial part of the year. But right now, we already are in 60-70 percent disbursement, and this is already a vast improvement,” Canda said.
“We expect that in a couple of months, as our COVID-19 cases fall and our restrictions also ease, there will be a significant increase also in implementation of agencies,” Canda added.
The fiscal deficit ballooned since 2020 as the government needed to boost its COVID-19 war chest amid a prolonged pandemic, while tax and non-tax revenue collection weakened due to the worst post-war recession posted in 2020, which shed millions of jobs and shed thousands of businesses.
In 2020, the budget deficit more than doubled to P1.37 trillion or 7.6 percent of GDP, from only P660.2 billion or 3.4 percent of economic output in 2019 before the pandemic.
While the emerging 2021 deficit will be narrower, it will remain the largest in history. To finance the wider budget deficit, the government also ramped up borrowings, bringing debt-to-GDP ratio to a 16-year high of 63.1 percent as of September.
The combination of debt-to-GDP above 60-percent deemed by debt watchers as manageable among emerging markets like the Philippines, plus a huge budget deficit, had posed risks to the Philippines’ investment-grade credit ratings.
But as the economy recovers from the pandemic-induced slump, the DBCC expects the fiscal gap to gradually decline to 7.7 percent of GDP next year, 6.1 percent of GDP in 2023, and 5.1 percent of GDP in 2024.
The debt ratio had been projected to be 59.1 percent at the end of 2021, peak to 60.8 percent in 2022, ease to 60.7 percent in 2023 and further ease to 59.7 percent in 2024.
Through the fiscal consolidation strategy currently being crafted by the Department of Finance (DOF), the DBCC wanted to return to the pre-pandemic deficit levels of about 3 percent of GDP beyond 2024.
DOF officials had said the forthcoming fiscal consolidation strategy may possibly include new or higher taxes which the next administration could implement to generate more revenues.
The DBCC expects pre-pandemic, 2019 revenues amounting to P3.14 trillion to be exceeded starting in 2022, with an estimated P3.3 trillion; P3.62 trillion in 2023; and P4.05 trillion in 2024.
