THE Department of Finance (DOF) said a deficit-to-GDP ratio that is higher than the government’s target for 2019 will not harm the Philippines’s credit rating, particularly since additional funds were used to pump prime the economy.
In an economic bulletin on Tuesday, Finance Undersecretary Gil Beltran said last year’s budget deficit, which was equivalent to 3.55 percent of GDP, was “financeable” due to the reduction in domestic interest rates and the national government’s debt ratios.
Official government data indicated that the budget deficit of 3.55 percent of GDP in 2019 exceeded the administration’s target of 3.25 percent of GDP by 0.3 percentage point. The deficit-to-GDP ratio last year was also up from 3.2 percent in 2018.
“The rise in the NG [national government] deficit beyond the government target should not adversely affect the country’s credit rating as fiscal stimulus was needed to shore up the country’s growth to a level closer to its 6.3-percent 10-year GDP growth average,” said Beltran.
“Likewise, in 2019, the deficit was financeable because domestic interest rates and the NG’s debt ratios were declining,” he added.
In just less than a year after the Philippines got its highest credit rating of BBB+ from Standard and Poor’s, Fitch Ratings has talso revised its outlook on its BBB credit rating for the Philippines from “stable” to “positive,” signaling a potential upgrade.
Just a few days before the Fitch Ratings’ outlook revision, the Philippines got a credit rating upgrade of BBB+ from Japan-based Rating and Investment Information Inc.
On Monday, Socioeconomic Planning Secretary Ernesto M. Pernia said the reduction in the country’s GDP growth could reach 0.3 percentage points if the impact of the virus lasts for six months and a 1-percentage-point cut in GDP growth if the virus infects the economy for the whole year.
This means that if the government expects a growth of 6.5 to 7.5 percent this year, a full percentage reduction will cut GDP growth to 5.5 percent to 6.5 percent in 2020.
Moreover, Pernia said there is a chance that the country’s deficit may widen to as much as 3.3 percent to 3.5 percent of GDP, higher than the administration’s target of 3.2 percent between 2019 and 2022.
Borrowing program
Asked if the government will be increasing the borrowing program this year to accommodate higher spending, Deputy Treasurer Erwin Sta. Ana said: “It’s a decision that has to be made by the DBCC [Development Budget Coordination Committee]; it’s part of the ways to address what appears to be…some sort of a slowdown in the economy.”
“Actually last year, we registered a deficit of 3.55 [percent of GDP]. I guess we will have to see what’s going to happen in the next few months before we jump to conclusions [about] increasing the deficit,” Sta. Ana added.
The DOF said it expects the early approval of the 2020 budget to cushion the negative impact of the eruption of Taal Volcano and the global uncertainties caused by the outbreak of the coronavirus disease 2019 (COVID-19).
This, the DOF said, will help the government implement programs and projects on time this year.
Wider deficit
The DOF issued the bulletin after the Bureau of the Treasury data released last week showed the national government recording a budget deficit of P660.2 billion last year, wider than the P558.3 billion recorded in 2018.
Expenditures outpaced revenues despite the budget delay and the election ban in the first half of the year.
The DOF said expenditures rose by 11.4 percent to P3.797 trillion as the catch-up expenditure plan “totally reversed” the residual effects of the delay of four-and-a-half months in the approval of the General Appropriations Act by Congress and the election ban.
In the last quarter of 2019, the DOF said expenditures grew 27.4 percent year-on-year.
Government revenues also rose by 10.1 percent to P3.138 trillion last year, from P2.850 trillion in 2018.
The bulk of total collection, or 90 percent, was tax revenues, which swelled to P2.828 trillion. The remaining 10 percent came from nontax sources amounting to P309.7 billion.
Tax revenues grew by 10.2 percent, exceeding nominal GDP growth. This was made possible by the improvement in the collections of the Bureaus of Internal Revenue and Customs, which went up by 11.5 percent and 6.3 percent, respectively.
Nontax revenues rose by 8.9 percent due to robust collections of dividend remittances on national government shares of stocks, guarantee fees, and share in the profits of government-owned and -controlled corporations (GOCCs).
In 2019, the country received GOCC dividends and share in the profits of GOCCs amounting to P91.7 billion, outstripping last year’s all-time high total dividends and share in profits of P73.3 billion, according to DOF.
Revenue effort went up by 0.5 percentage point from 16.36 percent in 2018 to 16.86 percent in 2019, the highest revenue effort ever. Tax effort also increased by 0.47 percentage point, from 14.72 percent to 15.19 percent—the highest tax effort in 22 years.
Image credits: Roy Domingo