Budget deficit grows to record P1.37T in 2020 amid COVID-19 underspending

MANILA, Philippines–The Philippines’ budget deficit grew to its biggest ever at P1.37 trillion in 2020, or 7.6 percent of gross domestic product (GDP), even as government spending was below target due to delayed implementation of some measures under the Bayanihan 2 law.

The Bureau of the Treasury’s full-year 2020 natiional government cash operations report (COR) released on Friday (Feb. 26) showed that 2020’s fiscal deficit, or the balance of public spending against revenue collection, was 107.7-percent bigger than the P660.2 billion, equivalent to 3.4 percent of GDP, posted in 2019.

The actual deficit was nonetheless almost one-fourth smaller than the P1.82-trillion program which was equivalent to 9.6 percent of GDP, as the government still underspent despite a surge in expenditures compared to disbursements in 2019 before the COVID-19 pandemic struck.

Government spending on public goods and services reached P4.23 trillion in 2020, up 11.3 percent from P3.79 trillion in 2019, “owing to the implementation of various COVID-19 mitigation and recovery measures,” the Treasury said in the report.

However, actual expenditures in 2020 were 2.5-percent below the P4.34-trillion spending program as “some of the economic relief measures under Republic Act (RA) No. 11494 or Bayanihan 2 is still ongoing,” the Treasury said.

Due to slow release and spending of Bayanihan 2 funds, which took effect in September 2020, President Rodrigo Duterte extended its validity until June 30, 2021. When the Bayanihan 2 law expired in December 2020, only P106.5 billion out of its P140 to 165.5 billion allocation had been released to implementing agencies.

But the Treasury noted that underspending eventually narrowed by end-2020 from a bigger 7.5-percent in the first nine months of 2020.

Net of interest payments, primary spending in 2020 rose by a faster 11.9 percent to P3.85 trillion from P3.44 trillion in 2019.

During the month of December alone, expenditures amounted to P541.1 billion, up 9.5 percent year-on-year mainly due to the release of national government subsidies to state-run corporations, as well as funds for health, employment assistance and social programs under Bayanihan 2, the Treasury said.

Tax and non-tax revenues fell 8.9 percent to P2.86 trillion last year from P3.14 trillion in 2019, even as actual collections were 13.3-percent higher than the downscaled 2020 goal of P2.52 trillion.

Duterte’s economic managers had slashed the revenue target for 2020 from P3.49 trillion pre-pandemic as collections weakened during the longest and most stringent COVID-19 lockdown in the region that pushed the economy into a recession which, in turn, shed millions of jobs and shuttered thousands of businesses.

Tax revenues mainly generated by the Bureaus of Customs (BOC) and Bureau of Internal Revenue (BIR) dropped by a faster 11.4 percent to P2.5 trillion in 2020, although 13.6-percent larger than the downgraded target.

Non-tax revenues surged 13.5 percent to P351.5 billion in 2020 as well as exceeded the goal by 11.7 percent, thanks to state-run corporations which remitted more dividends as their contribution to the government’s COVID-19 war chest.

The revenue effort, or total revenues as a share of GDP, declined to 15.9 percent in 2020 from 16.1 percent in 2019, while the tax effort also slid to 13.9 percent from 2019’s 14.5 percent.

For 2021, the Cabinet-level Development Budget Coordination Committee (DBCC) had programmed a budget deficit of P1.78 trillion, equivalent to 8.9 percent of GDP, to keep the Philippines’ fiscal gap in the middle of the pack across Asean and among economies with similar investment-grade credit ratings in a bid to avoid a downgrade from debt watchers and keep borrowing costs low.

This year, the government will still spend more, amounting to P4.66 trillion, than the amount of revenues it projected to collect, worth P2.88 trillion.

TSB