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October 06, 2022

Philippines seen booking narrower budget deficit in 2022, 2023

The Philippines is seen recording a narrower budget deficit over the next two years amid higher revenues from a strong economy recovery, according to Fitch Solutions.

The research arm of the Fitch Group is now expecting the country to book a deficit of 7.5 instead of 8.1 percent of gross domestic product (GDP) for this year and 6.2 instead of 6.7 percent for next year.

“The Philippines is still on track for a gradual fiscal consolidation over the coming years as strong revenue growth from a recovering economy and positive tax reforms will offset expansionary fiscal spending,” Fitch Solutions said.

This after Department of Budget and Management (DBM) released the national budget memorandum, detailing the fiscal aggregates approved by the Development Budget Coordination Committee (DBCC) last month.

“Our 2022 deficit forecast is slightly below the official projection of 7.6 percent of

GDP due to a slower economic growth assumption, whilst our 2023 forecast is slightly wider than the government’s projection of 6.1 percent of GDP as we expect expenditure to exceed official target,” Fitch Solutions added.

The research arm believes that the Philippines is still on track for a gradual fiscal consolidation over the coming years as strong revenue growth alongside a recovering economy and positive tax reforms would likely offset expansionary fiscal spending.

The Philippines is now prioritizing fiscal consolidation starting from 2022, with a goal to narrow the fiscal deficit to 4.1 percent in 2025 in line with the commitment of President-elect Ferdinand Marcos Jr. through incoming Finance Secretary Benjamin Diokno to narrow the budget deficit-to-GDP ratio to three percent by 2028.

Last year, the country booked a record P1.67 trillion budget deficit or 8.6 percent of GDP last year due to soaring public expenditures to fight the prolonged COVID-19 pandemic amid weak revenue collections.

The DBCC is expecting the deficit to narrow to P1.65 percent or 7.7 percent of GDP this year amid the sustained economic recovery as the country continues to reopen from strict COVID-19 quarantine and lockdown protocols.

Fitch Solutions expects the public debt-to-GDP ratio rising further to 60.6 percent in 2022 and peak at 60.9 percent in 2023 from 59.2 percent in 2021.

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