Fitch Solutions sees fiscal deficit falling below ceiling programmed for this year

THE PHILIPPINES will likely fall short of its budget deficit ceiling for 2019, Fitch Solutions said, explaining that it expects the government “to underspend” this year.
“We forecast the Philippines’ budget deficit as a share of GDP (gross domestic product) to come in at 2.9% in 2019, unchanged from our 2018 estimate. The shortfall would mark a share increase from 2.2% of GDP in 2017,” Fitch Solutions said in a report published on Tuesday.
The 2019 national budget assumes a wider fiscal gap at P624.4 billion equivalent to 3.2% of GDP, with authorities expecting a sustained rise in government spending as the “Build, Build, Build” infrastructure drive is expected to accelerate further.
The fiscal gap stood at P477.2 billion as of end-November, shy of the P523.7-billion ceiling programmed for 2018. State revenues were up by 16% year-on-year at P2.618 trillion, versus a 24% surge in disbursements worth P3.095 trillion, according to the Bureau of the Treasury.
The Department of Budget and Management has put together a P3.575-trillion spending plan for the year, but this awaits ratification by Congress. Secretary Benjamin E. Diokno warned in November that failure to pass the budget on time will mean a delay in the rollout of new projects, as operating on a re-enacted budget will leave them unfunded.
“The government is likely to underspend its budget in 2019 but slower-than-expected revenue growth means that the deficit will still come in at close to three percent,” the research unit of the Fitch Group said in the report.
The economic think tank believes that the fiscal gap will steady due to “slower-than-expected” revenue growth.
Succeeding tax reform packages remain pending in the legislative mill, even as most of them are projected to be revenue-neutral, compared to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act that took effect in January 2018 and is expected to bring in additional revenues.
Fitch Solutions also flagged “rising” risks, saying: “We believe that there is no imminent threat to macroeconomic stability from the government’s wider fiscal shortfall in the near-term, but note that the Philippine economy appears to be overheating and downside risks are increasing.”
Sister firm Fitch Ratings raised concern in December last year that the Philippine economy has been showing signs of overheating, as reflected by double-digit rates of increase in bank lending as well as a ballooning external trade gap. Still, the credit rater kept the Philippines at “BBB” — notch above minimum investment grade status — with a stable outlook.
The government is setting sights on 7-8% growth GDP this year, following a downward-revised 6.5-6.9% projection for 2018. A sustained pickup in infrastructure investment is expected to fuel growth, at a time when consumer spending is softening as prices are on the rise. — Melissa Luz T. Lopez