Govt likely to miss 2019 deficit goal
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Tue, 08 Jan 2019 16:26:58 +0000
This year’s budget deficit will likely fall short of target, a Fitch unit said as it also warned that the Philippine economy appeared to be overheating.
“The government is likely to underspend its budget in 2019. . . We at Fitch Solutions forecast the Philippines’ budget deficit as a share of GDP (gross domestic product) to come in at 2.9 percent,” it said in a report released on Tuesday.
Sub-par revenue growth was tagged as the likely cause.
The government is aiming for a deficit equivalent to 3.2 percent of gross domestic product (GDP) under the proposed P3.575-trillion 2019 budget, which is still pending in Congress.
The likely 2.9-percent result, Fitch said, will still be an expansion from 2018.
“Although the proposed 2019 budget is P10.0 billion smaller than the 2018 budget, it is still likely to be larger than the realized expenditure for 2018, which we estimate to have reached around P3.3 trillion,” it added.
The Fitch unit also highlighted President Rodrigo Duterte’ signing of Joint Resolution 3, which extended maintenance and other operating expenses and capital outlays of P3.8 trillion in 2018 national budget up to the end of 2019.
“This means that the administration will have two sources of spending for 2019: the 2019 budget and the leftover funds from 2018,” it noted.
There is no imminent threat to macroeconomic stability from the government’s wider fiscal shortfall, Fitch Solutions said, adding that the debt-to-GDP ratio of 42.1 percent as of end-2017 is moderate compared with those of emerging market and regional peers.
Moreover, the wider budget gap was a result of heightened infrastructure spending, which has the potential to raise productivity and competitiveness of the economy.
Fitch Solutions, however, observed that the Philippine economy appeared to be overheating and that downside risks were increasing.
“Downside risks to macroeconomic stability are rising as a result of loose fiscal and monetary policies…,” it said.
Interest rates remain very accommodative, it pointed out, despite cumulative policy rate hikes of 175 basis points in 2018, which brought the benchmark reverse repurchase rate to 4.75 percent.
This is amid much higher 6 percent-plus GDP growth, Fitch Solutions pointed out, adding that the trade deficit — at a record $4.2 billion as of October 2028 — remains on a widening trajectory and is unsustainable.
Lastly, it stressed that downside risks to macroeconomic stability were “evidenced from the continuous decline in the Philippines peso and slide in the foreign exchange reserves since peaking in May 2017, as well as a steady rise in core inflationary pressure.”
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