Budget deficit projected to narrow further this year

THE National Government’s (NG) fiscal deficit is seen to narrow further this year as revenue collections are likely to exceed targets, Fitch Solutions’ unit BMI said.

“We forecast the Philippine budget deficit to narrow from 6.2% of gross domestic product (GDP) in 2023 to 5.5% in 2024,” BMI said in a commentary.

“This narrowing would mark the third consecutive year the budget shortfall shrinks, a reflection of the current administration’s push for fiscal consolidation,” it added.

The Development Budget Coordination Committee (DBCC) last week revised the deficit ceiling this year to P1.48 trillion, equivalent to 5.6% of GDP. This was slightly higher than the previous P1.39-trillion ceiling, equivalent to 5.1% of GDP.

2028, the deficit-to-GDP ratio is seen settling at 3.7% from 3% previously.

As of end-2023, the deficit as a share of GDP stood at 6.2%, a tad higher than the 6.1% target set by the government but lower than the 7.3% ratio at end-2022.

BMI said this outlook is driven by the government’s revenue collection performance.

“Revenue collection will likely overshoot target in 2024 as efforts to broaden the tax base gain traction,” it said.

This year, the DBCC expects revenues to hit P4.27 trillion or 16.1% of GDP. 

Latest data from the Bureau of the Treasury showed that the NG’s budget balance in the first two months of the year widened by 26.56% to P76.7 billion, as revenues jumped by 15.32% to P645.8 billion.

“We think that this trend will continue over the coming years as policies targeted to broaden the tax base feed through. Newly appointed Finance Chief Ralph G. Recto pledged to sustain these efforts. We think revenue collection will amount to around 16.3% of GDP by the end of 2028,” it added.

Mr. Recto has said that he does not plan to introduce new tax proposals, but instead focus on improving tax collection and administration to generate revenues. However, he is pushing for the passage of pending tax reforms in Congress such as the rationalization of the mining fiscal regime and excise tax on single-use plastics, among others.

BMI said robust economic growth will help drive revenue collection higher this year.

“An improving macroeconomic backdrop will boost public coffers. Growth came in at (5.5%) in 2023. While this will be undoubtedly a strong performance for any other economies in the region, it is disappointing by Philippine standards,” it said.

“From 2015-2019, the economy expanded by an average of at a pace of 6.6%. 2024 looks set to be a better year. We forecast real GDP to accelerate to 6.2% in 2024. In particular, the resilience in private consumption will boost revenue collection,” it added.

Last week, the government narrowed its 2024 growth target range to 6-7% from 6.5-7.5% previously.

First-quarter GDP data is set to be released on May 9. 

Meanwhile, BMI said that the government is “actively maintaining spending within its targeted expenditure limits.”

“We predict that disbursements will make up 21.5% of GDP, which is slightly lower than the 22.0% recorded last year,” it said.

“Looking ahead, we project that, until the end of President Marcos’ term in 2028, expenditure as a percentage of GDP will average 20.2%,” it added.

Latest DBCC data showed that the government projects disbursements to hit P5.75 trillion this year, equivalent to 21.7% of GDP.

The Marcos administration aims to spend 5-6% of GDP annually on infrastructure.

“Enhancing the infrastructure framework is crucial for the current administration’s ambitious goal of positioning the Philippines as a leading destination for foreign investment,” BMI said.

Infrastructure spending rose by 18.7% year on year to P1.2 trillion in 2023, surpassing its P1.04-trillion program for the year. This was also equivalent to 5.8% of GDP.

In the coming years, BMI expects the country’s debt-to-GDP ratio to further ease.

“We forecast a decline in the debt ratio to 52% by 2028,” it added.

The NG’s debt as a share of GDP eased to 60.2% in end-2023. This was lower than the 60.9% at the end of 2022 and below the 61.2% government target.

However, it was still slightly above the 60% threshold considered by multilateral lenders to be manageable for developing economies.

Latest Treasury data showed outstanding debt hit a fresh high of P15.18 trillion as of end-February. — Luisa Maria Jacinta C. Jocson