Budget deficit expected to hit 2.3% of GDP

MANILA, Philippines - The government’s  budget deficit for this year  is seen to rise to 2.3 percent  of the country’s gross domestic product, largely due to the massive rehabilitation work in typhoon-devastated areas, according to First Metro Investment Corp. (FMIC).

A budget deficit is when a country’s government spends more than it takes in from taxes or other forms of revenue.

In its 2014 economic outlook briefing yesterday, FMIC president Juanchito Dispo said the ratio of outstanding debt to GDP is forecast to decrease anew to 47.5 percent from the current 49 percent.

The debt-to-GDP ratio, which indicates the country’s ability to pay back its debt,  has been declining in the past two years from a peak of 70 percent in 2004.  The lower the debt-to-GDP ratio, the healthier the country’s fiscal outlook.

University of Asia and the Pacific economist Victor Abola said the projected increase of fiscal deficit relative to the country’s total output was mainly due  to the huge cost of rehabilitating Typhoon Yolanda-stricken areas. “We based it on the expected borrowings that the government would make to fund the large-scale rehabilitation,” he said.

The total rehabilitation cost was pegged at P361 billion.The World Bank has offered a $980 million loan package for the rehabilitation project while the Asian Development Bank has also offered a loan package of $500 million.

Interest rates, meanwhile, are forecast to rise at a modest pace in 2014.