An improvement in tax collections and prudent expenditures has enabled the government to ramp up expenditure in the coming months to boost economic growth and meet state targets, a leading local bank said.
In its monthly commentary, the Bank of the Philippine Islands (BPI) said steady dollar inflows, mainly from Filipino migrant workers, had helped the government to cover foreign loan payments, which should leave a bigger portion of the public budget for social services.
“The proper allocation of resources towards productivity and capacity creation should spur greater economic growth, enough for credit rating agencies to give us their thumbs up for further upgrades,” the BPI Financial Markets Group said.
The Philippine economy, as measured by gross domestic product (GDP), grew by just 4.9 percent in the first quarter of the year, much lower than private and public sector forecasts.
GDP is the sum of all goods and services produced within an economy at a given time.
The economy’s slowdown was blamed on the government’s “underspending” tack, which officials said they had started to correct starting the second quarter.
BPI said additional spending would be needed to boost the country’s economic growth for the year, especially with the lack of support coming from abroad.
The bank said that while the economic recovery of Europe and the United States continued to be on shaky ground, the Asia-Pacific region was already poised for growth, driven by strong consumer spending.
“The Philippines, in particular, has demonstrated a burgeoning fiscal solidity, as evidenced by steady growth in national government revenues over the past few quarters,” BPI said.
Latest Finance Department data showed that the government posted a budget surplus of P26.26 billion in April—the biggest in 25 years and more than 10 times the P2.6-billion surplus seen a year ago.
The fiscal performance in April brought the record for the first four months to a surplus of P61 million.
Also, the country’s debt-to-GDP ratio fell to 51.2 percent from 53.9 percent at the end of last year, due to economic growth and the government’s prudent fiscal measures.
This development has opened up the country for a possible credit upgrade.
“While there are negative externalities affecting the global economy … we see that the overall growth trend for the Philippines, and the Asian region as a whole, should allow for conditions to improve a lot more than they could worsen in the long term,” BPI said.