High debts, weak revenues to weigh on next president’s spending decisions

14-Jan-2022 Intellasia | PhilStar | 5:02 AM Print This Post

Whoever gets elected as the next Philippine president would face “challenging spending decisions”, as the winner of the upcoming election would have to deal with weak revenues, a heavy debt load and bloated pandemic expenses, according to a Fitch unit.

In an emailed commentary on Thursday, Fitch Solutions said this was the case since the national government will run a larger fiscal deficit due in part to the Duterte administration’s pandemic response and a “deterioration in the fiscal position” during the coronavirus pandemic.

“However, the next president will likely have to rein in spending to reduce the fiscal deficit to maintain investor confidence, which could result in challenging spending decisions. As noted, the economy is in need of infrastructure spending but also improvements to government services such as education and healthcare to boost its longer-term growth potential,” the commentary said.

Economic managers expect the 2021 budget gap to end narrower at P1.61 trillion than their originally projected programme of P1.89 trillion, equivalent to 9.5 percent of the country’s gross domestic product. The Fitch unit noted that “the prioritisation of growth over deficit consolidation in 2022 could leave the next president facing fiscal challenges.”

As it is, the Duterte administration signed off on a budget for 2022 that was historically larger than previous iterations at P5.024 trillion. Some criticism hurled towards the national funding was allotting higher funding, unseen before, to local government units. Fitch noted that the budget this year would force spending cuts on national programmes “which could prove difficult if the next president has to balance competing demands for funding from regional governments.”

Fitch said that appropriations for 2022 were “was larger than we had previously expected, given our view the government would begin to prioritise fiscal consolidation.”

“While there is a need to support the Philippine economic recovery given the loss of employment and economic output due to the pandemic, the prioritisation of growth over deficit consolidation in 2022 could leave the next president facing fiscal challenges,” the research unit said.

The Fitch unit forecast the country’s debt-to-GDP ratio, a measure of an economy’s ability to pay its obligations, to expand 62.9 percent this year, up from 39.6 percent back in pre-pandemic 2019, while forecasting a higher fiscal deficit equivalent to 7.9 percent of the GDP in 2022.

In addition, the Fitch unit is forecasting spending concerns to inch up 11.2 percent this year since the Duterte administration said unused funds from the 2021 appropriations could be spent this year, noting that “recovering revenues offset supportive expenditure measures.”

Despite that, a rebound in the government’s revenue collection efforts, Fitch Solutions expects this to “offset still expansion fiscal spending, with the government seeking to accelerate the economic recovery in 2022.” Fitch projects government revenues to grow at a faster clip of 14 percent this year, owing to the country’s economic recovery.

Many analysts expect the fresh round of lockdowns this time, due to the highly-infectious Omicron variant surge, will not be a huge roadblock to growth, citing cases in 2021 wherein the economy managed to eke growth despite the imposition of harsh lockdowns.

“The major risks to our outlook mainly stems from another round of lockdowns or major disruptions to the Philippine economic recovery, which will result in a wider fiscal deficit and a higher public debt-to-GDP ratio,” the Fitch unit said.



Category: Philippines

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