PHL’s fiscal reputation among the best — report

THE PHILIPPINE government’s adherence to its fiscal targets over the past 10 years was seen to be among the best across 64 emerging markets, think tank Oxford Economics said.

In a report on Wednesday, Oxford Economics’ fiscal reputation index showed the country posted a score of 5.2 in the past decade, making it the sixth best performer among 28 select emerging economies studied.

If frontier markets were included, the country placed 16th out of 64 economies.

The scores of economies, based on the degree to which they met fiscal targets, were measured on a scale of 1 to 10, with 10 indicating the lowest adherence to fiscal plans.

Overall, Oxford Economics said emerging markets posted a “decent record” of sticking to their fiscal targets in the past decade. Investors gauged governments’ commitments to fiscal plans to see which can be trusted so they can base their actions when their fiscal news arises, it said.

Russia (4.3), Serbia (4.8), Croatia (5), Poland (4.8), and Hungary (5.7) recorded the best fiscal reputation based on adherence to projections from 2010 to 2020, Oxford Economics said. On the other hand, Egypt (6.6), Uruguay (5.9), South Africa (6), Turkey (5.5), and United Arab Emirates (UAE) have the worst fiscal reputation.

The Philippines saw its score improve to 4.9 in 2020 from 7.6 and 7.2 in the preceding two years. The index showed the country was able to stay within its targets well in the earlier years, reporting 5.3 score in 2017, 5 in 2016 and 3.9 in 2015.

From 2012 to 2014, the country practiced greater fiscal prudence with its fiscal reputation index at 3.3%, 3.4%, and 2.8%, respectively.

Data from the national Treasury showed the country’s budget deficit reached 7.63% of gross domestic product (GDP) last year, matching its program for 2020. In 2019, however, the government exceeded its fiscal gap ceiling of 3.2% with a 3.55% deficit-to-GDP ratio.

“An alarming, but still tentative, result for policymakers and markets is that many emerging markets with weak institutions are relatively effective at sticking to fiscal targets,” the think tank said.

It said they saw a negative correlation between fiscal reputation and institutional strength, and almost zero connection between the adherence to fiscal targets and other measures of governance such as political risk, corruption and business environment.

Oxford Economics noted that stronger institutions should be related with more reliable fiscal performance given the expectations of greater transparency.

“Conversely, it’s also plausible that more autocratic regimes are less sensitive to popular opinion and better able to make tough fiscal decisions and resist excessive spending to reach targets. A recent paper has attributed this to shorter time horizons of elected politicians,” it added.

Meanwhile, the report saw positive correlation between the strength of fiscal reputation and measures of sovereign risk, or the risk of governments’ capacity to service debt, across all emerging markets.

Measuring the excess sovereign spreads relative to fiscal strength, the Philippines were among the countries labeled with strong fiscal credibility and low risk premia, along with Indonesia, Kuwait, Colombia and Hungary.

“Investors inclined to place trust in sovereigns with a track record of sticking to fiscal targets now have the opportunity to invest and disinvest in identified outliers, after considering other factors that affect sovereign pricing,” the report said.

The economic team has capped its budget deficit at 9.4% of GDP this year. Over the near term, they expect this to slowly go down to 7.7% in 2022, 6.4% in 2023 and 5.4% in 2024. — Beatrice M. Laforga