Fitch: PHL on track for gradual fiscal consolidation

INTERNATIONAL think tank Fitch Solutions said on Wednesday that the country is “on track” for a gradual fiscal consolidation over the coming years, following the recent release of the country’s National Budget Memorandum (NBM) earlier this month.

In a research analysis, Fitch Solutions said it now expects the country’s budget deficit as a share of gross domestic product (GDP) to come in at 7.5 percent in 2022 and at 6.2 percent in 2023, versus 8.6 percent in 2021.

These have been revised down from the firm’s previous forecast of 8.1 percent in 2022 and 6.7 percent in 2023.

“Our revision comes after the Department of Budget and Management released the National Budget Memorandum [NBM] on June 9, detailing the fiscal aggregates which are approved by the Development Budget Coordination Committee [DBCC] on May 24,” Fitch Solutions said.

“Our 2022 deficit forecast is slightly below the official projection of 7.6 percent of GDP due to a slower economic growth assumption, while 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,” it added.

The firm’s positive view on the country’s path to fiscal consolidation is hinged on their expectation of strong revenue growth alongside a recovering economy and positive tax reforms. Fitch Solutions said these will “likely offset” expansionary fiscal spending.

“Accordingly, we expect the public debt to GDP ratio to peak at 60.9 percent in 2023, which bodes well for fiscal stability,” the firm said.

Broken down, Fitch Solutions expects revenue growth to come in at around 10 percent in 2022 and 2023.

As of the first quarter of the year 2022, government, tax and non-tax revenue collections grew by 23.7 percent amid economic reopening as more productive activities resume.

The firm also said it expects disbursements growth to be in line with the government’s projection of 6 percent for 2022, but exceed the official target of 2.6 percent in 2023.

“We see limited risks to the government’s fiscal position over the near term. While government debt as a share of GDP has ballooned to 59.2 percent in 2021 as compared with 39.6 percent before the pandemic, plans for fiscal consolidation at the back of increase tax revenue and rebounding economy is likely to bode well for fiscal sustainability,” the firm said.


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