Higher growth seen with fiscally aggressive ’22 national budget

The Philippine national budget for 2022 hints at a policy stance that is “still supportive” of growth as well as the government’s intention of accelerating the recovery of the economy, which has not regained prepandemic levels, according to Fitch Solutions.

President Duterte last Dec. 30 signed into law this year’s budget which, at P5 trillion, represented a quarter of the domestic economy and an increase of about 12 percent from the 2021 budget of P4.5 trillion.

“The announced budget was larger than we had previously expected, given our view the government would begin to prioritize fiscal consolidation,” Fitch Solutions said in a research note.

“With the pandemic threat to the Philippine economy still significant and the economy still yet to recover to prepandemic output levels, policymakers opted to continue fiscal support,” it added.

Fitch Solutions forecasts full year expenditures to grow by 11.2 percent in 2022, rising slightly from the expected 11 percent in 2021.

At the same time, Fitch Solutions forecasts revenues to rise by 14 percent this year, double the expected growth of 7 percent last year.

With revenue growth offsetting expenditure growth, the budget deficit is expected to decrease to 7.9 percent of gross domestic product (GDP) in 2022 from an estimated 8.3 percent in 2021.

“However, the wide deficit will add to fiscal pressures facing the next president, as we forecast the Philippines’ public debt-to-GDP ratio to rise to 69.2 percent in 2022,” Fitch Solutions said.

This is so considering that prioritization of growth over deficit consolidation in 2022, especially with the need to support the economic recovery given the loss of employment and economic output due to the pandemic.

“With the economic recovery disrupted in 2021, the 2022 budget signals policymakers’ intention to accelerate the recovery in 2022, in line with its expectations for real GDP growth of 7 percent to 9 percent,” the group said.