PHL budget deficit seen averaging 7.7% of GDP through 2023; fiscal position still intact

FITCH SOLUTIONS Country Risk & Industry Research projected the national government’s budget deficit to average 7.7% of gross domestic product (GDP) as the economy slows down due to the pandemic, but noted that its fiscal position will remain intact.

In a note Thursday, Fitch Solutions said it revised its outlook for the deficit-to-GDP ratio for 2020 to 9.3% from 8% previously. It also forecast 8.3% and 7.1% of GDP in 2021 and 2022, against the previous estimates of 3.5% and 3%, respectively.

Its previous estimate for the deficit-to-GDP ratio until 2023 was 4.3%.

“Our revision reflects provisional spending plans announced for the 2021 budget and a belief that the government will maintain a loose fiscal stance in the coming years due to the sharp economic downturn in 2020,” according to the note, “Philippines’ Fiscal Policy To Focus On Medium-Term Growth Over Near-Term Boost.”

It also cited the increased budget for next year of P4.5 trillion which features more support for the health system and higher allotments for infrastructure. However, Fitch warned of political maneuvering in Congress that could delay the passage of the budget.

“In addition, we expect the government to take further fiscal stimulus steps over the course of the coming quarters as uncertainty surrounding the pandemic recedes and investor appetite for risk assets picks up. Furthermore, with elections due in 2022, we expect legislators to speed-up support packages and spending in an effort to tackle unemployment, boost incomes and confidence ahead of voting,” it said.

The government’s official estimates are for a deficit equivalent to 9.6%, 8.5% and 7.2% of GDP in 2020, 2021, and 2022, respectively.

Despite the deficit, Fitch said the government’s overall fiscal position will remain manageable.

“While we forecast a wider deficit, overall risks to the fiscal position remain relatively contained. As noted, risk premia attached to the Philippines have declined, reducing government borrowing costs, despite the pandemic,” it said.

It forecast the national debt stock rising to 51.2% of GDP by years’ end, continuing to climb until 2022, before steadily declining and remaining “broadly flat at 51.4% by 2029.”

“Public debt levels will remain relatively contained after an initial surge in 2020, on the back of strong economic growth and productive investments,” Fitch Solutions said.

The deficit rose 515% to P740.7 billion in the eight months to August on the back of higher spending on pandemic containment measures alongside reduced tax collection.

Overall spending rose 21% to P2.671 trillion during the period while revenue fell 8% to P1.931 trillion, mainly due to the 12% year-on-year decline in taxes collected.

The government’s gross borrowings was P2.47 trillion in the eight months to August, up 170% year on year. It plans to borrow P3 trillion this year. — Beatrice M. Laforga