Gov’t vows return to 3% budget deficit

The government’s budget deficit ratio will start returning to its comfortable level once the local economy begins to grow next year, the National Economic and Development Authority (NEDA) said.

Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said the projected 8.1 percent budget deficit to gross domestic product (GDP) ratio this year is only temporary, assuring the government is capable of gradually bringing it down again to a three percent level.

“Right now, all countries are in a difficult position and their [budget] deficits are going up, and some are double digits,” Chua said in a recent online forum hosted by the Financial Executives Institute of the Philippines (FINEX).

“What we are proposing in the Philippines is to stay within the median of our comparable countries, and that is around maximum of nine percent of GDP,” he added.

Under the Development Budget Coordination Committee (DBCC) medium-term program, the national government is planning a gradual reduction of its budget deficit ceiling from 8.1 percent this year, to six percent next year and ultimately, five percent in 2022.

“I think it will be a very good signal that we can be fiscally responsive yet responsible. The important thing also is to communicate to the credit market both local and foreign our credible plan of bringing it down gradually to three percent,” the acting NEA chief said.

Chua also said the government’s structural reforms would help in reducing its fiscal deficit and at the same time fuel the local economy, which is seen to contract by 2.0 percent to 3.4 percent this year.

“We will have structural reforms to grow the economy to provide new sources of growth because it's okay that we have a high deficit and pass in value, so long as the GDP is growing much faster,” he explained.

After the economic slump in 2020, the DBCC, composed of President Duterte’s economic managers, is expecting the country’s GDP will recover next year by growing 7.1 percent to 8.1 percent, and by seven percent to eight percent the following year.

The economy fell to 0.2 percent in the first-quarter of the year, its worst performance since the Asian financial crisis in 1998.

Chua attributed the slump on the impact of Taal Volcano eruption in January, and moves by several nations, including the Philippines, to contain the ongoing pandemic.

He said that GDP would shrink deeper in the second-quarter after the country is put under community quarantine for already more than two months, effectively placing the entire economy to a standstill.

“We are seeing continuous improvement on the health side. So, we cannot support a continuous lockdown. But the good news is, the light at the end of the tunnel is much clearer now,” Chua said.