THE national government will return to its pre-pandemic debt and budget deficit levels as early as 2024 or by 2025, according to projections by the Department of Finance (DOF).
Finance Secretary Carlos Dominguez III said they are working on a fiscal consolidation plan in order to bring down the government’s debt and budget deficit levels as a share of the economy.
“It’s an evolving plan, which we will leave to our successors in the next administration. That is our duty and we will do it,” Dominguez told reporters.
From a record-low debt-to-GDP ratio of 39.6 percent in 2019, the country’s debt as a share of the economy surged to a 14-year-high of 54.6 percent in 2020, as government ramped up borrowings to fund the Covid-19 pandemic response war chest.
Meanwhile, the country’s budget deficit in 2019 stood at 3.4 percent of GDP or P660.2 billion in 2019, and this has more than doubled to a record-high 7.6 percent of GDP or P1.37 trillion last year.
Finance Undersecretary and Chief Economist Gil Beltran cited DOF projections of the national government returning to its old deficit and debt levels after three to four years if the recommended fiscal measures are passed early by the next administration and if the economy quickly recovers.
“So far, our estimates show that if we can get all these measures passed, it’s now 2021, by 2025, we will be back to our usual deficit, if we get all these measures passed,” he told reporters.
Pressed for details on what these fiscal measures are, Beltran separately told the BusinessMirror he will leave it to the next administration to announce.
On the national government’s debt to GDP ratio, Beltran also told reporters they still see it going over the internationally accepted threshold of 60 percent in the coming years before returning to its pre-pandemic level by 2024 or 2025.
“Because we expect the economy to surge upward, as soon as the lockdowns are taken out. Because the factors of production are there, it’s just that they cannot move. Once you remove the blockades, the checkpoints, and the restrictions, the economy will boom significantly,” Beltran explained.
To reduce the country’s deficit-to-GDP ratio, Dominguez said the government “may have to do two options,” which include reducing its expenditures and increasing its revenues.
“But I’m telling you it’s going to be very difficult, this fiscal consolidation period is going to be rather difficult. But the good thing that’s going for us is that interest rates are low. They haven’t risen very much.”
With the fiscal consolidation, the finance chief also said they expect the Philippines to again rejoin the frontrunners when compared to its peers.
“We expect to be back to the 2016-2019 trend where we were not just at par, we were among the frontrunners in our peers. And as we’ve emphasized all the time, this pandemic has not destroyed the factors of production, it has just put it in quarantine. So once that is released, we will grow a very, very healthy pace,” Dominguez said.
“So, we have to see how the plan evolves, as I said, [it] depends on how long this pandemic will last. Fortunately, we are in a relatively good position, not an absolutely good position, a relatively good position,” he added.
In July, international credit watcher Fitch Ratings affirmed the country’s rating at ‘BBB,” but revised its outlook from the assigned “stable” in January this year down to a “negative” outlook.
A negative outlook on a sovereign’s credit rating means that it could potentially face a downgrade if its economic dynamics and metrics continue to deteriorate in the policy horizon.
The credit watcher said the country’s fiscal finances have weakened, both in absolute terms and against peer medians, as a result of the pandemic.
It said it will monitor the evolution of fiscal deficit and debt levels, as the balance between fiscal consolidation and ongoing government spending to support economic recovery will be an important consideration for the rating.