Budget gap, debt-to-GDP ratios to expand

FITCH Ratings has projected wider Philippine budget deficit- and general government debtto-gross domestic product (GDP) ratios this year, still on account of the coronavirus disease 2019 (Covid-19) pandemic. In a report on Friday, Fitch Ratings analyst Sagarika Chandra said the government’s fiscal shortfall could swell to 7.5 percent of total domestic output this year “as spending on Covid- 19- related measures increase and revenues decline with the GDP contraction.” The forecast is wider than the 3.2 percent in 2019, but narrower than the government’s official assumption of 9.6 percent. Chandra said the outlook “incorporates spending measures for vulnerable groups and businesses hit by the pandemic, amounting to about 4 percent of 2020 GDP, and are included in the authorities’ four- pillar socioeconomic programme against the pandemic.”

Earlier, the Department of Finance reported that the government has so far earmarked P2.06 trillion — equivalent to 11 percent of GDP — for its four-pillar strategy against the pandemic. The amount covers providing emergency and wage subsidies for poor and low-income households, small-business employees and other vulnerable groups; marshaling the country’s medical resources and ensuring the safety of health-care frontliners; fiscal and monetary actions to finance emergency initiatives and keep the economy afloat; and an economic recovery plan to create jobs and sustain growth after the pandemic.

Latest data showed that the government incurred a P740.7billion budget gap in the first eight months of 2020, wider than the P120.4 billion in the same period in 2019.

For the next two years, Fitch Ratings sees a gradual decline in the deficit in 2021 and 2022 to 6.9

percent and 5.8 percent of GDP, respectively.

Meanwhile, it projects the country’s general government debt-toGDP ratio to pick up to around 48 percent of total domestic output this year, lower than the 34.1 percent recorded last year, and compares with the 50-percent ceiling programmed by the government.

“[T]he Philippines entered the crisis with fiscal space due to its relatively low debt ratio in 2019. In addition, the authorities’ record of macroeconomic management lends credibility to their mediumterm consolidation plans,” Chandra said.

The government’s outstanding debt is estimated to breach the P10-trillion mark by yearend as it plans to borrow more.

According to the Department of Budget and Management’s “2021 Budget of Expenditures and

Sources of Financing” report, state obligations will reach P10.16 trillion by end-2020, up 31.42 percent from the P7.73-trillion liabilities at the end of last year.

Domestic debt is projected to reach P6.91 trillion — a 34.84-percent increase from P5.12 trillion at end-2019 — accounting for the bulk of outstanding obligations. External liabilities will pick up by 24.67 percent to P3.24 trillion from P2.60 trillion last year.

The Treasury bureau earlier reported that the government’s outstanding debt rose to a record-high P9.61 trillion at end-August on accelerated domestic and foreign borrowings.

Finance Secretary Carlos Dominguez 3rd has said the Philippines is capable of paying its growing number of loans that were mostly used to support the government’s response to the pandemic.