Think tank sees wider budget deficit for PH in 2025

Despite the Marcos administration’s initiatives to manage its deficit levels, the Philippines’ budget gap is expected to grow to 5.9 percent of the gross domestic product (GDP) next year, according to BMI Research, a unit of the Fitch Group.

“This will reverse the country’s fiscal consolidation efforts. Admittedly, the Philippines’ fiscal recovery has already fallen behind regional counterparts and the latest budget certainly does not help this cause,” BMI said.

The government’s budget deficit ceiling for this year is equivalent to 5.6 percent of total economic output. For next year, the administration wants to bring it lower to 5.3 percent, reducing it further to 3.7 percent by 2028.

The Marcos administration has set next year’s budget at P6.352 trillion, which equates to 22 percent of the GDP and 10.1 percent more than the P5.768 trillion this year. With a higher budget, public spending is also set to increase to 21.9 percent in 2025 from 21.7 percent this year.

According to the Fitch unit, while the government aims to lower debt to 55.9 percent of GDP by 2028, “we believe this target is unlikely to be met.”

Achieving this would require the Marcos administration to maintain a budget deficit of 3.6 percent for the next three years, which means cutting government spending by almost 1 percentage point, making it difficult for the government to fulfill its economic plans.

“Instead, we forecast the budget shortfall to average 4.6 percent over the same period. Consequently, public debt will recede more slowly, eventually reaching 58.8 percent of GDP in 2028,” BMI said.

Rise in domestic demand

The government set the debt-to-GDP ratio at 60.6 percent this year, slightly above the 60 percent that lenders deem manageable for developing economies.

BMI also noted the government doesn’t have enough flexibility to tighten its budget if it aims to achieve its growth target of 6.5 to 7.5 percent next year, especially since the administration is prioritizing infrastructure plans by allocating a quarter of the budget for these.

The current administration aims to spend 5 to 6 percent of GDP annually for infrastructure through 2028.

BMI looks forward to a rise in domestic demand, which is expected to boost the economy by 6.3 percent in 2025.

“This growth, along with strong private spending and lower interest rates for businesses, should help increase government revenue,” the report said.