ING: Flat spending means low growth
The budget for spending is still quite tight, and we expect the debt-to-GDP ratio to go down further in 2025
Unit of global investment financial institution ING Philippines expects government spending to remain flat this year while consumers are expected to exercise more financial control as revenge spending loses steam.
“Government spending was kind of muted because we continue to run quite a sizable debt-to-GDP (gross domestic product) ratio. I think this will be sort of flat again this year,” ING senior economist Nicholas Mapa said.
As a result, Mapa said the economy will remain robust but will experience “below par” growth as some government funds will be redirected to debt obligations from projects with direct impact on Filipinos.
“The budget for spending is still quite tight, and we expect the debt-to-GDP ratio to go down [further] in 2025,” Mapa said.
Last year, government spending only grew by 0.4 percent based on data from the Philippine Statistics Authority.
Meanwhile, the Department of Finance reported a slight improvement in the country’s debt-to-GDP ratio to 60.2 percent last year from 60.9 percent in 2022.
Higher borrowings
The government plans to borrow P2.46 trillion this year or 11 percent higher than the P2.21 trillion programmed for 2023, the Department of Budget and Management said. The bulk of the loans will come from domestic sources.
The statistics authority reported GDP as a measure of economic growth last year stood at 5.6 percent, lower than the government’s target of 6 to 7 percent.
For 2024, the Development Budget Coordination Committee forecasts 6.5 to 7.5 percent.
Meanwhile, Mapa said household consumption will likely tame this year as consumers will start repaying debts for purchases brought about by the so-called revenge spending.
“I feel that households are really stretched at this point. Consumer loans have been growing by double digits,” he said.
“The biggest jump was in credit cards, outstripping car loans. Most of the people were swiping cards for basic goods,” Mapa continued.
Citing data from the statistics authority, Mapa said even growth in food expenses among consumers decreased from 12 percent in 2022 to negative 0.5 percent last year.
Data from the Bangko Sentral ng Pilipinas reveals consumer loans have grown by 24 percent amid its still elevated policy rate of 6.5 percent.
Mapa said borrowing costs will likely remain high as the central bank aims to stabilize inflation within its 2 to 4 percent target range.
The central bank said it continues to see inflationary risks from food and electricity prices.
However, Mapa said inflation rates, in general, will likely stay in the central bank’s target range for the full year.
ING’s forecast data show inflation rate will grow by over 4 percent only in July before going down again to 3 percent levels.