Philippines: Budget deficit shrinks in April as ‘base effects’ distort spending, revenue data

• May 25, 2021

MANILA, Philippines — The Duterte administration’s budget deficit narrowed in April, with the so-called “base effects” accounting for both the sharp pick-up in revenues and double-digit drop in spending during the month.

The government’s fiscal gap shrank 83.78% year-on-year to P44.4 billion in April, the Bureau of the Treasury reported Monday. That massive contraction was enough to narrow the year-to-date deficit at an annualized 1.63%, data showed.

The good news is a shrinking deficit means the government will now have more room to temper its debt, which has built up as the country’s pandemic needs grow.

It’s a trend seen persisting in the coming months, Nicholas Mapa, senior economist at ING Bank in Manila, said. But the narrowing deficit, Mapa said, would likely be driven by economic managers’ decision to limit spending to avoid incurring more debts amid growing calls for a new pandemic relief package to blunt the pain of renewed lockdowns.

“We expect the budget deficit to narrow in the coming months as authorities rein in spending to limit the impact on debt,” he said in an e-mail.

Breaking down the Treasury’s report, government expenditures sagged 27.14% on-year in April as a result of “high base effect” from 2020 when bulk of spending under Bayanihan to Heal as One Act (Bayanihan 1), including cash aid and wage subsidies, was doled out.

A low base effect from tepid tax collections due to last year’s lockdowns and the government’s decision to move the deadline for income tax filing pushed up revenues 55.46% on-year in April, figures showed. Revenues also got an extra boost from the seasonal payment of income taxes last month, the Treasury said.

For Mapa, the Duterte administration’s continued reluctance to unleash a convincing fiscal response would just hamper economic recovery and would eventually come back to bite the government with just more debts as revenues dwindle. Data showed that even on a month-on-month basis, disbursements sagged 17.5% in April.

“As the economy is expected to remain stuck in low gear, revenue collections will likely struggle which could reverse this trend (narrowing deficit) by year end, leading to a higher debt-to-GDP ratio as debt rises (due to falling revenues) while GDP slides (lack of support),” he added.

If there’s any consolation, economic officials led by Finance Secretary Carlos Dominguez III are open to adding P170 billion on existing spending to finance a much-needed relief package. That, in turn, would bloat the deficit to 9.4% of gross domestic product (GDP) in 2021 from 8.9% originally.

But there is one condition: any additional costs should have a counterpart revenue source whether from savings of agencies pooled together, or even larger dividends remitted by state companies to the national government. Even proceeds from asset sales — which Dominguez rejected last year — would qualify, just not more debt. 

Source: https://www.philstar.com/business/2021/05/25/2100776/budget-deficit-shrinks-april-base-effects-distort-spending-revenue-data