7-month deficit exceeds 2019 record

By Beatrice M. Laforga, Reporter

THE National Government’s budget deficit ballooned to a record P700 billion as of end-July, as pandemic expenses continued to rise while revenues fell amid the economic slowdown.

The Bureau of the Treasury (BTr) on Wednesday released its cash operations report showing the seven-month budget deficit at P700.6 billion, nearly six times the P117.9 billion during the same period a year ago. It also exceeded the P660.2-billion deficit recorded for the entire 2019.

“The year-to-date budget deficit hit P700 billion, translating to roughly 3.7% of GDP (gross domestic product), a deterioration from the 3.2% posted at the end of 2019 but far less severe than the doomsday threshold set by the (Finance department) of roughly 9%,” said Nicholas Antonio T. Mapa, a senior economist of ING Bank N.V. Manila.

The fiscal balance once again slipped into the red in July with a P140.2-billion deficit, from a P1.8-billion surplus in June.

July revenues declined by 11.2% to P234.5 billion as uncertainty over the pandemic continues to weigh on economic activity, the Treasury bureau said.

Tax revenues, which accounted for 85% of the total, fell 10.4% from a year ago to P212.3 billion. The Bureau of Internal Revenue’s (BIR) collections declined by 11.8% to P159 billion, while the Bureau of Customs (BoC) generated 8.8% lower collections at P49.8 billion. This was partly offset by the taxes generated by other offices, which almost doubled to P3.5 billion.

“BoC’s July performance was lower compared with the P54.6 billion achieved in the same month a year ago, weighed down by disruptions to trade caused by the lockdown,” the Treasury bureau said.

Revenues from non-tax sources also declined by 18.7% to P22.2 billion in July. BTr’s income dropped by 47% to P7.6 billion, partly due to the remittance of dividends earlier this year. Non-tax income of other offices increased by 12.4% to P14.6 billion.

State spending in July jumped by 10.4% from a year ago to P374.7 billion, with primary spending — or expenditures net of interest payments — rising 9.3% to P315.3 billion and interest payments growing by 16.5% to P59.4 billion.

The BTr said the higher disbursement was mainly due to the release of the second tranche of the government’s cash aid program for Filipinos whose livelihoods were affected by the lockdown.

In the seven months to July, BTr data showed overall revenues went down by an annual 6.8% to P1.688 trillion as tax collections declined by 11.7% to P1.429 trillion.

Taxes collected by the BIR slipped by 10.53% to P1.115 trillion during the January to July period, while BoC collections fell by 15.3% to P303 billion. Tax revenues of other agencies also went down by 23% to P10.3 billion due to the impact of the health crisis on business activities and government operations. This was partly offset by the 34% jump in non-tax revenues to P259.2 billion.

Higher dividends from state corporations and other service income drove BTr’s revenues 87% higher to P190.9 billion as of end-July, exceeding its P82.3-billion target for the entire year. Non-tax revenues from other offices, meanwhile, slid by 25.7% to P68.3 billion.

State spending for the first seven months of the year rose by 23.8% to P2.388 trillion on the back of the 26% growth in primary spending to P2.141 trillion and the 7% increase in interest payments to P247.1 billion.

Year-to-date interest payments as a share of revenues grew to 14.64% from 12.75% a year ago because of lower tax collections. As a percentage of expenditures, interest payments improved to 10.34% from 11.97% as spending accelerated.

The fiscal gap is widely expected to balloon this year but it could have been bigger if the government was not “financially constrained” to spend more, said Cid L. Terosa, a senior economist at the University of Asia and the Pacific.

“I believe that spending was not enough to cushion the impact of the pandemic on the economy since GDP growth slid further and the unemployment rate ballooned by double digits,” Mr. Terosa said via e-mail on Wednesday.

The economy plunged into a recession as GDP shrank by a record 16.5% in the second quarter. Unemployment rate hit 17.7% in April from 5.1% a year earlier, equivalent to 7.25 million Filipinos out of work.

Mr. Terosa said the country’s fiscal balance is expected to remain in deficit for the rest of the year with faster spending seen to “arrest the downward trajectory of economic growth and to shore up the country’s ability to address pandemic-related socio-economic concerns.”

“Revenues will continue to lag behind spending and slump relative to levels achieved last year, but it might improve slightly relative to previous months given less restrictive quarantine conditions in the remaining months of the year,” he added.

ING Bank’s Mr. Mapa said the deficit-to-GDP ratio gives the government “more than ample fiscal space” to allow for faster and bigger spending plans to “salvage some form of growth for the economy.”

“With the rest of the economy mired in recession, the Bayanihan II fiscal recovery bill and possible other outlays should help stimulate growth in the coming months, although the window for spending to generate enough critical mass to prevent five quarters of contracting GDP is closing fast,” he said in a note e-mailed to reporters on Wednesday.

Congress has passed the “Bayanihan to Recover as One Act,” which allots for P140 billion in funding to hard-hit sectors and P25 billion in standby appropriations, bringing the total stimulus package to P165 billion. The measure has been transmitted to Malacañang for President Rodrigo R. Duterte’s signature.