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Philippines: Budget deficit narrows in February as both spending, revenues fall
MANILA, Philippines — The Duterte administration posted a smaller budget deficit in February after both government spending and revenues contracted during the month.
Data released Thursday by the Bureau of the Treasury showed the government ran a P105.8 billion budget deficit in the second month of the year, 8.77% narrower compared with a year ago. In the first two months of 2022, the state’s budget deficit amounted to P129.2 billion, down 0.65% year-on-year.
The deficit means the government continued to spend beyond its means as authorities try to meet the country’s pandemic needs while revenues from tax and non-tax collections remain tepid due to anemic economic activity. To bridge the budget gap, the government would have to borrow money from investors.
That said, the narrowing of budget deficit is a welcome development for a government that has been trying to temper the growth of debts that have piled up because of the pandemic by limiting spending. Indeed, the Treasury reported that total expenditures fell 5.16% year-on-year in February to P318.2 billion.
But it’s not all good news after revenues that flowed into state coffers dropped 3.26% on an annual basis to P212.4 billion in February. That said, Nicholas Mapa, senior economist at ING Bank in Manila, believes the government’s fiscal health “remains in a tenuous position” amid lingering economic headwinds.
So far, the government has rejected calls to suspend excise taxes on fuel amid rising global oil prices, arguing that such a move would erode a crucial revenue source of the state at a time of widening deficits and growing debts.
Instead, economic managers decided to use proceeds from fuel taxes to partly fund financial assistance to inflation-hit Filipinos which, in turn, would still add to the deficit woes.
“Unless revenue collection can pick up considerably, we may have to expect further deterioration for both the nation’s deficit and overall debt levels. The deadly combination of soft revenue collection and rising spending will definitely drive the deficit and pile on more loads of debt on the already tenuous fiscal position,” Mapa said in a commentary.
“The longer the country remains in the position the longer the Philippines will be susceptible to ratings action which would make financing even less affordable,” he added.
For this year, the government projects the budget deficit to settle at 7.7% of GDP before further easing to 6.1% in 2023 and 5.1% in 2024. These assumptions, of course, may change when a new administration takes over after the May polls.
Mapa said a “fiscal handicap awaits the next leader.”
“Unlike the current administration, which was able to hit the ground running given the healthy fiscal position turned over, the incoming president will need to deal with the very precarious situation of high debt all the while setting up the country’s next government,” he said.
“Hopefully, debt levels will not deteriorate further as the Philippines can ill afford a credit rating downgrade in the environment of rising global rates.” — Ian Nicolas Cigaral with a report from Ramon Royandoyan
Source: https://www.philstar.com/business/2022/03/31/2171267/budget-deficit-narrows-february-both-spending-revenues-fall