By Melissa Luz T. Lopez
Senior Reporter
THE PHILIPPINES remains on solid fiscal ground despite a bigger budget deficit last year, Moody’s Investors Service said, citing stronger revenue collections.
“The wider fiscal deficit masks underlying stability when considering the Philippines’ fiscal strength,” Moody’s senior credit officer Christian de Guzman said in an e-mailed reply when sought for comment.
The Bureau of the Treasury reported a P558.3-billion fiscal deficit for 2018, substantially bigger than the P350.6-billion shortfall in 2017 and settling above the P523.7 billion programmed for the entire year. That placed the shortfall at an equivalent of 3.2% of gross domestic product (GDP), also higher than the three percent deficit ceiling set for the year.
The wider fiscal gap came as state disbursements reached P3.408 trillion, more than the P3.37-trillion program for the year and spelling a 20.7% increase from the P2.824 trillion spent in 2017.
Revenues totaled some P2.85 trillion, slightly exceeding the P2.846-trillion goal for the year.
IMPROVED METRICS
The bigger deficit does not ring alarm bells just yet, the global credit rater said, as it is accompanied by better metrics that reflect the country’s fiscal health.
Mr. De Guzman noted that the Philippines’ debt burden settled at 41.9% of GDP in 2018, improving from 42.1% a year earlier.
He added that debt affordability has been improving, with the ratio of interest payments to revenue down to 10.2% from 11%. Such trend has been sustained for the ninth straight year.
Moody’s noted that this was largely due to the implementation of Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which raked in additional revenues to support increased state spending requirements.
“This was made possible by the gains in revenue resulting from the implementation of TRAIN,” Mr. De Guzman explained.
“In the absence of revenue reforms such as TRAIN package 1, we may have seen an even wider deficit that would have had a more negative impact on the Philippines’ fiscal strength,” he added.
The TRAIN law was expected to generate an additional P63.3-billion revenues in its first year of implementation from the removal of some exemptions from value-added tax (VAT); increased tax rates for fuel, cars, tobacco, coal, minerals, documentary stamps; and new levies on sugar-sweetened drinks and cosmetic procedures, among others.
The Bureau of Internal Revenue missed its P2.074-trillion tax target by six percent, but bigger collections by other state agencies drove the revenue effort to 16.4%, the highest since 2007.
Moody’s affirmed the country’s credit rating at “Baa2” — one notch above minimum investment grade — with a “stable” outlook in July last year, as it flagged the need to collect more taxes given a “narrow” revenue base.
A higher credit rating makes it cheaper to borrow from foreign sources, as these vouch for a country’s ability to pay their loans.
The Philippines plans to borrow additional funds this year to support more aggressive spending, which will largely finance big-ticket infrastructure projects under the “Build, Build, Build” pipeline.
Finance Secretary Carlos G. Dominguez III told reporters on Friday last week that the budget balance remains “manageable” despite breaching 2018’s ceiling, saying the government was “confident” of staying within the deficit ceiling for 2019 set at P624.4 billion, equivalent to 3.2% of GDP.
Increased state spending is expected to propel growth to 7-8%, coming from a three-year low of 6.2% in 2018.

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