Fitch unit expects bigger budget gap for 2022

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Lawrence Agcaoili – The Filipino Star

October 9, 2022 | 00:00

MANILA, Philippines – Fitch Solutions Country Risk & Industry Research raised its 2022 fiscal deficit projection for the Philippines, but said the country was on track for gradual fiscal consolidation over the next few years due to a strong revenue growth.

He said the Philippines could face a bigger budget deficit of 7.6% of gross domestic product (GDP) instead of 7.5% for 2022.

For 2023, the research branch of the Fitch group expects a lower budget gap of 6% of GDP instead of 6.1%.

“Our fiscal deficit forecast for 2022 is in line with official projections while our fiscal deficit forecast for 2023 is slightly below official projections of 6.1% due to a difference in growth assumptions,” he said. he declares.

According to Fitch Solutions, the slight revisions came after the release of budget notes by the Senate Economic Planning Office on September 12, detailing macroeconomic and fiscal assumptions for the 2023 National Budget Proposal.

The research arm still believes that the Philippines is on track for gradual fiscal consolidation over the next few years due to strong revenue growth thanks to broad tax reforms and robust economic growth that will offset fiscal spending. expansionists.

“Despite an increase in fiscal spending, we still believe the Philippines remains on track for gradual fiscal consolidation over the next few years due to strong revenue growth,” Fitch Solutions said.

He expects the public debt-to-GDP ratio to peak at 61.1% next year, boding well for fiscal sustainability.

“As such, we expect the public debt-to-GDP ratio to peak at 61.1% in 2023, before declining from 2024,” he said.

Data from the Department of Finance (DOF) showed that the government budget deficit as a percentage of GDP ballooned to 8.6% in 2021 from 7.6% in 2020.

Prior to the COVID-19 pandemic, the government managed to narrow the gap to 3.4% of GDP in 2019.

On August 22, President Marcos proposed to Congress a record budget of 5.27 trillion pesos for 2023 to achieve his economic program of keeping real GDP growth between 6.5 and 8 percent throughout his term as President. 2022 to 2028.

The proposed spending is 4.9% higher than the 2022 budget and is expected to reach 22.1% of GDP.

“As of October 5, budget details have not yet been finalized, but we expect some changes to be made to the approved 2023 budget. So far, the proposed budget has already passed Senate deliberations on September 29 and is now being presented to the plenary, at the time of writing,” said Fitch Solutions.

He said spending is likely to remain high for the next few years as President Marcos seeks to continue former President Duterte’s flagship project, Build, Build, Build.

“We expect disbursement growth to be in line with government projections of 2.6% in 2023, as the Marcos administration has signaled that it will still maintain a supportive fiscal stance to help drive economic growth,” did he declare.

In 2023, Fitch Solutions expects strong revenue growth of 10% year-on-year, driven by sweeping tax reforms and a robust economic backdrop.

“The suite of tax reforms under the overall tax reform program has helped to significantly boost revenue growth since its inception, and we are likely to see continued impact in the future,” he said. .

The Marcos administration has pledged to reduce the deficit to 3% of GDP by 2028.

“The widening budget deficit was mainly due to a collapse in income coupled with expansionary spending as the government sought to mitigate the economic fallout from the pandemic,” Fitch Solutions said.

As a result, public debt as a percentage of GDP soared to 60.4% in 2021 from 39.6% before the COVID-19 pandemic.

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