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March deficit spending balloons

Residents wait to get their financial aid from the government at a covered court in Barangay Commonwealth, Quezon City, April 9. — PHILIPPINE STAR/ MICHAEL VARCAS

THE National Government’s budget deficit widened to P191.4 billion in March, as spending grew by double digits and revenues slipped amid a stricter lockdown, the Bureau of the Treasury (BTr) reported on Tuesday.

Preliminary data from the BTr showed the first-quarter budget gap stood at P321.5 billion, almost four times the P86.2 billion posted during the same period a year ago.

Finance Secretary Carlos G. Dominguez III said the deficit would likely remain elevated this year, as the prolonged pandemic means the government still spending to drive growth.

In an interview with CNBC, Mr. Dominguez said the goal is to bring down the deficit cap to 3.5-4% of gross domestic product (GDP) starting 2022.

Preliminary data from the BTr showed the budget deficit in March was almost triple the P71.6-billion deficit a year ago. Month on month, this was 65% higher than the P115.97-billion deficit in February.

This was attributed to increased expenditures, which rose by 22% to P407.4 billion last month from P333.2 billion spent in March 2020.

Primary spending or overall expenditures less interest payments jumped by 24% to P360 billion in March, due to higher disbursements for infrastructure projects of the Department of Public Works and Highways (DPWH) and social welfare programs of the Department of Social Welfare and Development (DSWD) and Department of Labor and Employment (DoLE).

“The continuing implementation of the Bayanihan II for initiatives such as the Rice Resiliency Program of the DA (Department of Agriculture) and health programs of the DoH (Department of Health) also contributed significantly to the strong spending performance in March,” the BTr added.

Interest payments increased by 11% to P47.7 billion in March, bringing the three-month total to P125.9 billion, up by 5% from a year earlier.

For the first quarter, total expenditures increased by 20% to P1 trillion, from P849.2 billion a year ago.

Meanwhile, overall revenues declined by 17% to P216.2 billion in March from its year-ago level of P261.6 billion, which had included dividend remittances from state-owned corporations as mandated by Republic Act No. 11469 or the Bayanihan to Heal As One Act.

Tax collections accounted for 88% of total revenues.

The government’s tax haul went up by 7% to P190.1 billion in March, largely driven by the 22.57% growth in Customs collections to P54.7 billion. The Bureau of Internal Revenue’s (BIR) collections inched up by 1.28% to P133.4 billion.

Nontax revenues dropped by 69% to P26.1 billion last month, mainly due to a 79% decline at BTr to P16.1 billion due to a high base last year. The BTr’s P77-billion income in March 2020 was buoyed by the early dividend remittances of state-owned firms.

Income from other sources such as fees, charges and proceeds from privatization efforts went up by 40% to P10 billion.

For the January to March period, total revenues were 8.7% lower year on year to P696.5 billion.

In a note on Tuesday, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said he expects the budget gap to widen further in the next few months as tax collections slide due to the extended lockdown and as the government increases spending to fuel recovery.

A wider deficit meant the government must increase borrowings as well and accommodate a higher debt-to-GDP ratio, he said. However, Mr. Ricafort warned that exceeding the international threshold of 60% debt-to-GDP ratio would make fiscal management “less sustainable” in the long term and could be viewed as credit-negative by debt watchers.

“Structurally, faster economic recovery that effectively increases the GDP base would help address this in the coming months/years, alongside fiscal reform measures. The more structural and sustainable solution is further reopening of the economy that increases the capacity, production, sales, income and employment of many businesses and industries and also helps in increasing the tax revenue collections of the government,” he added.

Meanwhile, Mr. Dominguez said in an interview with CNBC on Tuesday that the government is planning to bring down its fiscal deficit as a share of the country’s economic output to pre-pandemic levels of 3.5-4% by next year.

“We are very careful in managing this (pandemic) and we are pretty sure that by 2022, we will begin to return to the normal fiscal deficit we have of about 3.5% to 4%,” he said.

In a separate Viber message, Mr. Dominguez confirmed that narrowing the deficit-to-GDP ratio would largely be driven by revenue, coupled with a strong economic rebound.

“[The planned lower deficit will come] from a combination of a reduction in the disruptions due to the contagion, increase in public and private investments, drop in unemployment, increase in consumption, increase in taxable profit, return to solid investments-led growth of the economy,” he told reporters.

A 3.5-4% fiscal deficit ratio compares with the latest deficit cap of 7.3% of GDP for 2022 that was set by the Development Budget Coordination Committee (DBCC).

If realized, this will be a big turnaround from the actual 7.6% ratio in 2020 and will move closer to the pre-pandemic level of 3.4% in 2019. Before the pandemic, the government had been targeting to cap the budget deficit at 3.2% of GDP.

The DBCC is set to release its revised macroeconomic targets and medium-term fiscal program in May. — B.M.Laforga

National Government Fiscal Performance