Narrower budget gap seen for 2023, 2024

MANILA, Philippines — The Philippines may incur a smaller budget deficit over the next two years on the back of strong revenue growth, according to BMI Country Risk & Industry Research.

In an analysis titled “Fiscal Consolidation to Continue in the Philippines,” the unit of Fitch Solutions said it lowered its 2023 budget deficit forecast for the Philippines to 5.9 percent of gross domestic product (GDP) from the previous target of 6.4 percent.

The revised forecast is lower than the 6.1 percent of GDP ceiling set by Philippine economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

“The bigger picture is that the Philippines remains well on the path of fiscal consolidation in the medium term, and is now on pace to meet the President’s target of three percent by 2028,” BMI said.

BMI raised its revenue growth forecast for the Philippines to 6.5 percent from 5.2 percent for this year as collections from January to August already accounted for 70 percent of the target.

“We had previously thought that the Philippines’ poor economic performance would weigh heavily on revenue collection. But things have not panned out this way and its impact on public coffers was smaller than we expected,” BMI said.

On the expenditure side, it expects spending growth to slow to 1.3 percent for 2023 after accounting for only 63.4 percent of the total budget.

For next year, BMI expects the budget gap to further narrow to 5.1 percent in light of the latest 2024 budget release.

“Beyond this year, we expect the fiscal deficit to shrink back in line with the P5.77 trillion budget approved by the government on Sept. 28,” BMI said.

It noted that a quarter of the total budget for 2024 was set aside for infrastructure spending, which bodes well for economic growth.

From January to August , the Philippines’ budget deficit narrowed by 12 percent to P732.5 billion from P833 billion in the same period last year as revenue collections increased by nine percent to P2.58 trillion, while expenditures inched up by 3.5 percent to P3.31 trillion.

Due to the impact of the COVID pandemic, the country’s budget shortfall ballooned to P1.37 trillion or 7.6 percent of GDP in 2020, and further to P1.67 trillion or 8.6 percent of GDP in 2021 from P660.24 billion or 3.4 percent of GDP in 2019.

The gap narrowed to P1.61 trillion or 7.3 percent of GDP last year with the full reopening of the economy as strict COVID quarantine and lockdown protocols were lifted.

The Philippines borrows heavily from both onshore and offshore creditors to finance the country’s budget deficit as it continues to spend more than what it earns.

BMI said it expects the public debt-to-GDP ratio also to fall to 60.5 percent in 2023 and further to 59 percent in 2024 after peaking at 60.9 percent in 2022.

“A narrowing of the overall budget deficit means that the public debt burden should ease slightly going forward… This poses limited risks to the government’s fiscal position over the short term,” it added.

BMI recently lowered its economic growth forecast for the Philippines to 5.3 percent from the original target of 5.9 percent for this year due to the disappointing figure in the second quarter.