Philippines: Gov’t likely to miss deficit target as spending slows, revenues recover

• Nov 26, 2021

MANILA, Philippines — The Duterte administration will likely miss its budget deficit target this year as easing coronavirus restrictions boost revenue collections while economic managers continue to temper spending to avoid more borrowings. 

The government posted a budget deficit of P64.3 billion in October, up 10.90% year-on-year, the Bureau of the Treasury reported Thursday. This brought the 10-month gap to P1.2 trillion, 27.94% bigger compared with a year ago.

A deficit means the government is spending beyond its means. Since the health crisis hit home last year, the state has been incurring large deficits as pandemic expenses continued to balloon, while elevated unemployment and business closures as a result of lockdowns sapped tax collections. To bridge the budget gap, the government would have to borrow more money from creditors at home and abroad.

For this year, the Duterte administration has set a budget deficit limit of P1.9 trillion, equivalent to 9.3% of the country’s gross domestic product. But Treasury data showed the budget gap in the January-October period only accounted for 65% of the deficit cap for the year. With only two months left this year, analysts believe the government is unlikely to hit or breach its deficit ceiling for 2021.

If that prediction comes true, it would be a good news to a government that is worried about the dizzying rise of its debts as the pandemic drags on. Last July, Fitch Ratings already warned the Philippines that its hard-won investment grade would be at risk if state liabilities continue their ascent to alarming levels.

“The latest budget deficit numbers suggest that the 2021 figure may still slip below the projected target of P1.9 trillion. Improved collections due to improving economic output is helping limit the impact on the overall deficit,” Nicholas Mapa, senior economist at ING Bank in Manila, said in an e-mailed response to queries.

“Authorities appear to be holding back on spending to rein in rising deficit and debt levels,” Mapa added.

Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp., agreed with Mapa, adding that the latest figures from the Treasury “already accounted for majority of the Covid19-related expenses.” 

Data showed government spending rose 9.6% year-on-year to P317.4 billion in October, which was nevertheless 23% lower compared to the amount disbursed in September. Year-to-date, expenditures expanded 11.51% on-year to P3.7 trillion

“Spending appears to be on auto pilot with the growth rate posting a modest double digit gain despite a torrid pace of public construction, suggesting spending in other areas remains soft,” Mapa said.

Meanwhile, the government generated a total of P253.1 billion revenues in October, growing at an annualized rate of 10.90%. Tax collection made up 87% of the total revenues during the month, figures showed.

In the past 10 months, collections stood at P2.5 trillion, up 5% year-on-year and accounting for 86% of the government’s watered-down revenue goal of P2.9 trillion.

“As the economy reopens, we should also expect more tax collections from heightened economic activity which can somewhat offset the huge expenses during the last 10 months of the year,” Sun Life’s Enriquez said.

Source: https://www.philstar.com/business/2021/11/25/2143744/govt-likely-miss-deficit-target-spending-slows-revenues-recover