Deficit balloons in Feb. as spending picks up

By Beatrice M. Laforga, Reporter

THE NATIONAL GOVERNMENT’S budget deficit more than tripled to P116 billion in February against its year-ago level, as the double-digit growth in spending outpaced the uptick in revenues, the Bureau of the Treasury (BTr) reported on Tuesday.

In its latest cash operations report, preliminary BTr data showed the budget deficit more than tripled last month from P37.6 billion in February 2020. It was also wider than the P14-billion fiscal gap in January.

The Treasury attributed the wider budget gap to the faster pace of spending versus revenue growth, after the government released P45 billion in additional capital to state-run financial institutions for their credit guarantee and lending programs.

The government runs on a budget deficit if it spends more than the revenue it generates. Tax collections have declined amid a slowdown in economic activity due to the pandemic. The government is increasing spending to drive the recovery this year.

Overall state spending jumped by 37.3% to P335.5 billion in February from P244.4 billion a year ago. This was also faster than the 1.18% increase in January spending.

Primary spending — total expenditures less interest payments — surged by a third to P304.4 billion from P229 billion a year ago, driven by the additional capital given to three state-led financial institutions.

As part of the second stimulus package of the government, the Development Bank of the Philippines (DBP) received P12.5 billion in additional funds, while the Land Bank of the Philippines got P27.5 billion. The Philippine Guarantee Corp. likewise received P5 billion in additional capital to expand its credit guarantee to banks lending to small businesses.

Interest payments nearly doubled to P31.2 billion in February, after the Treasury settled coupon payments for the retail Treasury bonds (RTBs) issued last year and interest was paid for the euro-denominated bonds sold last year.

Total revenues grew by 6.2% to P219.6 billion in February from P206.8 billion a year ago, a turnaround from the 11.5% contraction in January.

Tax revenues, which accounted for 93% of total revenues, climbed by 7.3% year on year to P203.3 billion.

The Bureau of Internal Revenue (BIR) collected P154.1 billion, up by 8.4% from a year ago. The Bureau of Customs (BoC) generated P47.2 billion in duties and taxes, up by 5.35%.

This partly offset the 19% slump in taxes collected by other offices to P1.9 billion in February.

Meanwhile, revenues from non-tax sources such as the proceeds from privatization efforts and other fees and charges fell by 37.3% from a year ago to P16.3 billion.

The Treasury posted P4.6 billion in income, down by 22% year on year due to lower collections from Philippine Amusement and Gaming Corp. and investments.

Nontax revenues generated by other offices inched up by 1.37% to P11.7 billion.

The February deficit caused the two-month fiscal gap to surge almost nine times to P130 billion from P14.6 billion in the same period last year.

Total spending grew 18.27% to P610.3 billion from P516 billion a year ago. This was driven by the 21% jump in primary expenditures which hit P532 billion.

Interest payments also went up slightly by 1.85% to P78.2 billion.

Despite the higher income last month, the January-February revenues of P480.3 billion was still 4.22% lower year on year due to reduced tax collections.

The BIR collections fell by 0.24% to P336.3 billion in those two months, while Customs reported a 6.2% drop to P94.5 billion in revenues. Taxes collected by other state offices were also down by 3.15% to P5.2 billion.

Non-tax revenues also remained below than year-ago levels, which declined by 24% year on year to P44.3 billion.

The BTr’s income went down by 32% to P23.2 billion due to lower dividends, while non-tax income by other offices likewise slipped by 12% to P21.1 billion.

The proportion of interest payments relative to total spending eased to 12.81% as of end-February, from 14.88% in the same period last year. As a percentage of revenues, interests paid accounted for 16.28%, higher than the 15.31% a year ago.

Economists expect the monthly fiscal gap to widen further in the coming months, as the government further ramps up spending to drive economic growth.

“I believe that spending should follow the set programmed expenditure and additional spending, if needed, is something that has to go through Congress. If the recent re-imposed restrictions should continue, the Duterte government should finally seriously consider a third fiscal stimulus to help support the economy and its already slower-than-expected recovery,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

Cid L. Terosa, senior economist at University of Asia and the Pacific, said the muted rebound in tax collections amid the crisis will mean a further widening of the budget deficit in the coming months.

“As the economy recovers, gains in revenue collections will continue to be modest as long as the administration of the mass vaccination program continues at a tortuous pace,” Mr. Terosa said.

The economy is struggling to recover, as the snail-paced mass vaccination rollout dampens business sentiment. The tighter lockdown and surging infection rates are also  further threatening the overall outlook.

“Slower economic growth can lower the rate of increase in tax collections. The long and winding road to economic recovery that the country is traversing implies that the faster generation of more and more revenues will take time as well,” Mr. Terosa added.

The government set a cap for its budget deficit this year at 8.9% of gross domestic product.