Think tank Fitch Solutions said the 2022 deficit would likely narrow to 7.9 percent of gross domestic products from 8.3 percent last year. It also expects the debt-to-GDP ratio to rise to 69.2 percent in 2022. To compare, the debt-to-GDP ratio was 63.1 percent as of September last year.
THE country’s budget deficit this year would likely stay above the pre-pandemic average even as the gap narrows on a rebound in revenues, adding fiscal pressures to the next administration, according to think tank Fitch Solutions Country and Industry Research.
Fitch said the 2022 deficit would likely narrow to 7.9 percent of gross domestic products from 8.3 percent last year, said a BusinessWorld report on Friday.
“Rebounding revenues on the back of the economic recovery will offset still expansion fiscal spending, with the government seeking to accelerate the economic recovery in 2022,” the think tank said.
Fitch Solutions raised the budget deficit forecast from the previous 7.8 percent of GDP for 2021 and 6.9% percent for 2022, noting the country still faces risks from the pandemic’s threat to revenues.
Fiscal consolidation
“We believe the Philippine government could come under some pressure to speed up fiscal consolidation plans given the sharp rise in public debt levels during the pandemic,” Fitch said.
As revenues slipped during the pandemic, the country’s deficit expanded to 7.5 percent of GDP in 2020 from 3.4 percent a year earlier.
In the 11 months to November, the budget deficit reached P1.33 trillion, up by 24.63 percent compared with the P1.07 trillion in the same period last year.
The government’s economic managers said the fiscal gap could reach 8.2 percent of GDP for 2021, then 7.7 percent for this year.
Stronger growth
Fitch Solutions said economic growth this year would likely be stronger than in 2021 despite the threat of the Omicron variant of the coronavirus disease 2019 (COVID-19).
“As such, while the budget continues to provide economic stimulus, revenue growth should be such that the overall deficit narrows in 2022,” it added.
This year’s P5-trillion national budget is larger than previously expected, Fitch Solutions said.
Spending growth
Spending would likely grow by 11.2 percent in 2022, up from the expected 11 percent for 2021.
“Following an announcement that unused funds from the 2021 budget could be spent in 2022, we expect this to push up overall spending for the year,” Fitch Solutions said.
Meanwhile, revenues are projected to expand by 14% this year from 7% in 2021 as eased lockdowns support more domestic activity and tax collections.
Revenue collection in the 11 months to November hit P2.7 trillion, or 5.99 percent higher than last year, Treasury data showed.
Amid the deterioration of the country’s fiscal position during the pandemic, Fitch Solutions said the next president could face challenges if he or she prioritizes growth over deficit consolidation.
The think tank expects the debt-to-GDP ratio to rise to 69.2 percent in 2022. To compare, the debt-to-GDP ratio was 63.1 percent as of September last year.
“Government bond investors may become increasingly concerned about the surge in public debt, especially if they believe that further public debt increases are likely,” Fitch Solutions said. “In turn, this could see borrowing costs rise over the coming years as bondholders demand a higher risk premia.”
The think tank said the next president would also need to scale down spending to cut the deficit and maintain investor confidence, noting this is a “challenging” choice while the country needs spending in infrastructure, education, and healthcare.
Tags: #Phl, #budgetdeficittonarrow, #FitchSolutions, #economy