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DoF defends deficit as needed stimulus, sees no sovereign ratings impact

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Department of Finance (DoF)

THE Department of Finance (DoF) said the larger-than-expected 2019 budget deficit will not have a negative impact on sovereign credit ratings as government spending was needed to stimulate economic growth last year.

“The rise in the NG (national government) deficit beyond the target should not adversely affect the country’s credit rating as fiscal stimulus was needed to shore up the country’s growth to a level closer to its 6.3% 10-year GDP growth average,” the DoF said in an economic bulletin Tuesday.

The budget deficit widened to a record P660.2 billion in 2019, up 18.27% from a year earlier, after a P494.4 billion spending surge in December pushed overall expenditure beyond the P620-billion ceiling for the year.

The deficit was equivalent to 3.55% of gross domestic product (GDP), exceeding the 3.25% ceiling set for the year.

“The catch-up expenditure plan launched by government after the election ban has boosted expenditures by 27.4% in the fourth quarter, thus pushing the whole year NG expenditure program beyond the whole year program,” it said.

Government expenditure last year of P3.797 trillion exceeded the P3.769-trillion spending plan by 0.74% while overall revenue rose 10% to P3.137 trillion in 2019, 0.39% short of its P3.149 trillion target.

The Finance department added that last year’s deficit was “financeable” as local interest rates continue to decline as does the size of the NG’s outstanding debt relative to GDP.

Despite the nominal growth in outstanding debt to P7.771 trillion at the end of 2019, the debt-to-GDP ratio last year fell to 41.5% from 41.8% a year earlier. The year-end ratio was the lowest since 1986.

“Despite this development, public construction declined by 2.4% in constant terms, last year,” the DoF said.

Moving forward, it expects the early approval of the 2020 budget to enable projects in the public sector to be implemented on time this year, which will “moderate the negative impact of the Taal eruption and the global uncertainties arising from the coronavirus disease (Covid-19) outbreak.”

Socioeconomic Planning Secretary Ernesto M. Pernia said Monday that GDP growth could suffer as much as a one-percentage point reduction this year if the outbreak persists until the end of the year.

The assessments were made based on a scenario of inbound Chinese tourists dropping by 100% and overall foreign tourist arrivals declining 10%, and assuming a drastic reduction in trade.

The government is targeting 6.5-7.5% GDP growth this year. — Beatrice M. Laforga





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