Budget deficit estimated to creep up to 7.6% of GDP, says Fitch

The national government’s spending beyond its earnings is expected to go back to 7.6 percent of gross domestic product (GDP) this year, the same level seen in 2020, from a record 8.6 percent in 2021, according to Fitch Solutions Country Risk and Industry Research.

This means a slightly upward revision from the 7.5-percent budget deficit forecast announced last June.

“These slight revisions came after the release of the budget notes by the Senate Economic Planning Office on Sept. 12 detailing the macroeconomic and fiscal assumptions of the proposed 2023 national budget,” Fitch Solutions said.

The financial services firm noted that its latest forecast for 2022 was in line with official projections.

“Despite an increase in fiscal spending, we still believe that the Philippines remains on track for gradual fiscal consolidation over the coming years due to strong revenue growth on the back of extensive tax reforms and robust economic growth which will offset expansionary fiscal spending,” Fitch Solutions said.

Increasing revenues

Data from the Bureau of the Treasury show that as of the January-August period, national government revenues revved up by 18 percent to P2.4 trillion from P2 trillion in the same eight months of 2021.

The amount was already 72 percent of the full-year goal of collecting P3.3 trillion.

Even then, Fitch Solutions said that the ratio of the national government’s debt stock to the size of the domestic economy would not peak until 2023 at 61.1 percent.

In 2021, the Philippines debt-to-GDP ratio was pegged at 60.4 percent.

This year, as of the end of June, the debt stock was recorded at 62.1 percent of GDP, having receded from 63.5 percent at the end of March.

The government’s economic team has set a goal of bringing back the budget deficit to the prepandemic level of 3 percent and the debt-to-GDP to 52.5 percent, both by 2028 or the end of President Marcos’ term.

“The government’s plan to consolidate its fiscal position is positive for debt sustainability,” Fitch Solutions said. It noted that the fiscal deficit widened primarily due to a collapse in revenues coupled with expansionary spending as the government sought to mitigate the economic fallout from the pandemic.

Factors that will make Fitch Solutions’ forecasts disagree with actual readouts include the weakening of global demand that could affect the Philippines’ economy and erode revenue growth.

Also posing risks to the forecasts are elevated inflation pressures, which could prompt greater subsidies to help ease the cost of living and thus increase government expenditures.