Deficit-to-GDP ratio softens to 4.5 percent in Q1

MANILA, Philippines — The budget deficit’s share to the overall economy softened in the first quarter and is still closing into its pre-pandemic level as the government moves to consolidate its finances.

The country’s budget deficit, when measured against the gross domestic product (GDP), eased to 4.5 percent in the first quarter from 5.8 percent in the same period last year.

The budget deficit stood at P272.6 billion as of end-March.

The ratio was also lower than the end-2023 level of 6.2 percent. This comes after the economy grew, although at a slower pace of 5.7 percent in January to March.

The latest ratio has continued to close into the pre-COVID level of 3.4 percent recorded in 2019.

Similarly, the current deficit-to-GDP ratio is below the 5.6-percent expectation for this year.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the easing ratio could be attributed to improved revenue collections.

During the quarter, revenue collections grew by 14 percent to P933.7 billion, with both tax and non-tax revenues posting growth.

“There was also more disciplined government spending and the priority to boost collection from existing tax laws,” Ricafort said.

For January to March, disbursements expanded by 11 percent to P1.21 trillion from P1.09 trillion as interest payments and primary spending both went up.

Even with the easing deficit-to-GDP ratio, the government is already expecting that cutting the deficit will take longer than initially projected amid the need to continue supporting key programs despite a limited fiscal space.

As such, the Marcos administration maintained that returning to pre-COVID levels until 2028 may not be a walk in the park.

Over the course of the Marcos administration, the Cabinet-level Development Budget Coordination Committee (DBCC) has raised the budget deficit ceilings.

For next year, the deficit is projected to be at P1.49 trillion or 5.2 percent of GDP. This is a significant revision from the 4.1 percent earlier expectation.

A slower budget deficit reduction will continue by 2026, as the gap would only be slashed to P1.48 trillion or 4.7 percent of GDP as compared to the 3.5 percent previous assumption.

By 2027, the budget shortfall will ease to P1.4 trillion, equivalent to 4.1 percent of GDP. By that time, the economic team earlier expected the gap to close into the pre-pandemic level of 3.2 percent.

As the government ends its term in 2028, the budget deficit will be at P1.37 trillion or 3.7 percent of the economy, instead of finally hitting the level prior to COVID-19 at three percent.

To plug the deficit, the DBCC said borrowings would be complemented by an upsurge in revenue collections over the medium-term as a result of improved tax administration and recalibrated revenue measures.