PH budget deficit down to 6.4 from 8.6 percent of GDP

MANILA, Philippines—The national government’s budget deficit as a share of gross domestic product (GDP) narrowed to 6.4 percent in the first quarter of 2022, auguring well for plans to revert the gap to pre-pandemic levels of about 3 percent.

The latest Department of Finance (DOF) data showed that the end-March budget deficit-to-GDP ratio was the smallest amid the prolonged COVID-19 pandemic.

In actual value, the Bureau of the Treasury (BTr) last month reported that the first-quarter budget deficit—amounting to P316.8 billion—was 1.4-percent smaller than the P321.5 billion posted in 2021.

From January to March, the government’s tax and non-tax revenue collections grew faster than spending on public goods and services amid further economic reopening which resumed more productive activities. GDP also grew by a stronger-than-expected 8.3 percent year-on-year during the first three months of 2022.

Following the 1.9 percent-of-GDP deficit in the first quarter of 2020, the gap swelled to 11.5 percent by the second quarter as the government imposed the most stringent COVID-19 lockdown in the region that stopped 75 percent of the economy in a bid to contain the deadly coronavirus.

The lockdown had badly hit government revenues — in 2020, the April 15 annual deadline to file and pay the prior year’s income taxes was extended by two months in consideration of pandemic movement restrictions, while the economy slid to its worst post-war recession. Also, the government spent more, including giving away cash dole outs to the most vulnerable households who lost jobs as well as businesses temporarily shuttered by COVID-19 quarantine.

From an annual budget deficit equivalent to 3.4 percent of GDP in 2019, the fiscal gaps widened to 7.6 percent in 2020, and a record 8.6 percent in 2021.

The Cabinet-level Development Budget Coordination Committee (DBCC) had programmed to end 2022 with a P1.65-trillion budget deficit, equivalent to 7.7 percent of GDP. In terms of value, the projected deficit for this year will be slightly smaller than last year’s biggest-ever amounting to P1.67 trillion, as the government continued to spend and borrow more to fight the health and socioeconomic crises inflicted by COVID-19.

President Rodrigo Duterte’s economic team will turn over to the incoming Marcos Jr. administration a comprehensive fiscal consolidation and resource mobilization plan aimed at narrowing the yawning budget deficit while repaying the debt that piled up amid the prolonged pandemic.

Finance Secretary Carlos Dominguez III had said officials wanted to revert the budget deficit to pre-pandemic ceilings of about 3 percent of GDP in the near- to medium-term as the economy recovers from its previous pandemic-induced slump.

Fiscal consolidation may include new or higher taxes, prioritizing infrastructure spending while slashing budgets on non-priority sectors, as well as drivers to growth so the economy can increase government revenues and outgrow the ballooning public debts as well as debt servicing requirements.

TSB