9-month budget deficit hits P1.1-T despite underspending

MANILA, Philippines — The Duterte administration continued to underspend in the first nine months as the government tries to temper its ballooning budget deficit, which nevertheless continued to swell during the period.

Government spending grew 17.50% year-on-year in September to P412.1 billion, the Bureau of the Treasury reported Monday. The amount included a P10 billion that the Treasury infused to a trust fund for the country’s coconut industry and its workers as mandated by Republic Act 11524, the report said.

But for the first three quarters of the year, disbursements only stood at P3.4 trillion, 5.22% lower than P3.56 trillion that the state was hoping to spend during the period.

Data showed spending nevertheless continued to outpace collection of revenues, which grew at an annualized rate of 8.96% to P231.4 billion in September. In the first nine months, revenues generated reached P2.2 trillion, 4.37% higher than the amount generated in the same period last year.

As a result, the Duterte administration posted a budget deficit of P180.9 billion in September, 30.60% wider compared to year-ago level. This brought the nine-month gap to P1.14 trillion, 29.56% bigger than the deficit posted a year ago and accounting for 61% of the P1.8-trillion deficit cap for the year.

For analysts like Nicholas Mapa, senior economist at ING Bank in Manila, the persistent underspending of the government is not surprising at all, as economic officials try to limit expenditures to avoid breaching their budget deficit limit, which is set at 9.3% of gross domestic product this year.

Moving forward, Mapa said spending may “accelerate” in the coming months as incumbent officials try to finish projects ahead of the May 2022 elections. Revenue collections, meanwhile, “may stay soft”, no thanks to weak economic activity that has yet to return to pre-pandemic level.

This, in turn, could push the budget deficit beyond 9% of GDP this year, Mapa added.

“A wider deficit will translate to a higher debt pile, which could mean that the overall debt to GDP ratio stays above the all important 60% threshold,” Mapa said. “Staying above this key threshold leaves the Philippines susceptible to a possible credit rating downgrade.”