Wider budget deficit seen until 2023

MANILA, Philippines — The Philippines may incur a wider budget deficit until 2023 due to a pandemic-induced decline in revenue, according to Fitch Solutions Country Risk & Industry Research.

The research unit of the Fitch Group said the Philippines is likely to incur wider budget shortfalls than previously expected over the coming years as the government holds back on spending in the near term to ensure room to support growth.

“The COVID-19 pandemic has resulted in a sharp slowing of domestic economic activity and required fiscal stimulus measures to support households and businesses amid lockdowns and a sudden loss of income,” Fitch Solutions said.

Fitch Solutions said the Philippines’ budget deficit may average at 7.7 percent of gross domestic product (GDP) between 2020 and 2023.

It also said the government should maintain a loose fiscal policy stance over the medium term to support economic recovery .

The Philippines slipped into recession as the GDP contracted by a record 16.5 percent in the second quarter after the entire Luzon was placed under lockdown to slow the spread of COVID-19.

From January to August, the country’s budget shortfall widened by 5.2 percent as revenues fell by 7.7 percent, while expenditures jumped by nearly 21 percent.

“Unlike in other Southeast Asian economies, such as Thailand and Singapore, the Philippines has opted to withhold large fiscal stimulus packages while the economy remained in lockdown. Secretary of Finance Carlos Dominguez has stated his intention to maintain fiscal policy space to support the economy over the coming years, with uncertainty over the pandemic still high,” it said.

As a result, Fitch Solutions now expects the Philippines to incur a wider budget deficit of 9.3 percent of GDP instead of eight percent of GDP this year as revenues slump more aggressively than previously expected.

It is also projecting a wider budget shortfall of 8.3 percent of GDP instead of 3.5 percent for 2021 and 7.1 percent of GDP instead of three percent for 2022.

BSP Governor Benjamin Diokno said Wednesday the national government is seeking a fresh P540 billion loan package to beef up its war chest against the pandemic.

Despite the projected wider budget deficit, Fitch Solutions said overall risks to the country’s fiscal position remain relatively contained.

The research arm expects a wider debt-to-GDP ratio of 51.2 percent this year.