Philippine budget deficit to shrink

PH budget deficit expected to shrink

Story by Niña Myka Pauline Arceo
Manila Times
10 April 2024

THE Philippine government is expected to incur a lower budget deficit this year as it continues to pursue fiscal consolidation, a Fitch Group unit said.

In a report on Monday, BMI Country Risk and Industry Research said the Philippine budget deficit would likely narrow to 5.5 percent of gross domestic product (GDP) from 6.2 percent last year.

The ratio, however, below the government's recently revised projection of 5.6 percent, or P1.484 billion.

"This narrowing would mark the third consecutive year the budget shortfall shrinks...," BMI noted.

The government incurred a budget shortfall of P1.512 trillion last year, exceeding the targeted P1.499 trillion even as revenue growth outpaced spending.

The result was just over the programmed 6.1 percent.

Revenues, which surpassed expectations in 2023, are expected to exceed target this year due to the impact of efforts to widen the tax base and the continued resilience of private consumption.

The government is targeting P4.27 trillion in revenues this year, equivalent to 16.1 percent of GDP.

BMI sees the 2024 ratio at a slightly lower 16 percent, up from 15.7 percent last year, and at 16.3 percent at the end of 2028.

Spending, meanwhile, will likely stay within target at 21.5 percent of GDP, down from 2023's 22 percent.

The official disbursement projection for 2024 is P5.75 trillion, equivalent to 21.7 percent of GDP.

"Looking ahead, we project that, until the end of President Marcos' term in 2028, expenditure as a percentage of GDP will average 20.2 percent," BMI said.

It noted government efforts to keep infrastructure spending to 5 to 6 percent of GDP to support economic growth of 6.5 to 8.0 percent.

After last year's below-target (6.0 to 7.0 percent) growth of 5.6 percent, the economy was forecast to expand by 6.2 percent in 2024, falling within the downwardly revised goal of 6.0 to 7.0 percent.

A narrower deficit, BMI said, "bodes well for the country's fiscal sustainability."

Government debt, which hit 61.1 percent of GDP last year in the wake of efforts to address the Covid-19 pandemic, is expected to hit 59.7 percent in 2024 and ease further to 52 percent by 2028.

"President [Ferdinand] Marcos [Jr.] has made a clear commitment to reduce the budget deficit to 3.0 percent of GDP by 2028, down from the record peak of 8.6 percent in 2021," BMI noted.

"However, we believe the deficit will likely miss the aforementioned goal by a narrow margin given the tightrope between growth and maintaining fiscal stability," it added.