Philippines budget gap seen to narrow anew this year

MANILA, Philippines — The Philippines may incur a smaller budget deficit this year on the back of robust revenue growth, according to BMI Country Risk & Industry Research.

In an analysis titled “Philippines: Narrower Fiscal Deficit In 2024,” BMI said the Philippine budget deficit could narrow to 5.5 percent this year from 6.2 percent of gross domestic product (GDP) in 2023. If realized, it would mark the third straight year that the fiscal gap shrank.

The projection is lower than the 5.6 percent of GDP ceiling set by Philippine economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC). However, this is higher than the 5.1-percent estimate BMI gave in October last year.

“Revenue collection will likely overshoot target in 2024 as efforts to broaden the tax base gain traction,” BMI said. “Consequently, we expect debt levels to ease over the coming years.”

BMI sees revenue growth for the Philippines hitting 16 percent of GDP in 2024 from 15.7 percent last year, while revenue collection will continue to surpass government expectations in the coming years.

“We think revenue collection will amount to around 16.3 percent of GDP by the end of 2028,” BMI said.

On the expenditure side, the research firm said it expects spending growth to quicken to 18.2 percent of GDP from 18 percent in 2023. BMI also predicts that government disbursements will make up 21.5 percent of GDP.

“Looking ahead, we project that, until the end of President Marcos’ term in 2028, expenditure as a percentage of GDP will average 20.2 percent,” BMI said. “Enhancing the infrastructure framework is crucial for the current administration’s ambitious goal of positioning the Philippines as a leading destination for foreign investment.”

Based on latest government data, the budget gap picked up by 27 percent to P76.7 billion in the first two months of the year from P60.6 billion in the same period last year. Revenue collections rose by 15 percent to P645.8 billion, while expenditures jumped by 22 percent to P388.7 billion.

The Philippines borrows heavily from both onshore and offshore creditors to finance the country’s budget deficit as it continues to spend more than what it earns.

The government seeks to reduce the budget deficit to just 3.7 percent of GDP by 2028, down from the record-high 8.6 percent in 2024.

“However, we believe the deficit will likely miss the aforementioned goal by a narrow margin given the tightrope between growth and maintaining fiscal stability,” it said.

BMI also expects the public debt-to-GDP ratio to fall to 52 percent by 2028.