PH fiscal condition still stable – Moody’s
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Thu, 28 Feb 2019 16:21:06 +0000
The Philippines continues to enjoy fiscal stability despite last year’s wider-than-programmed budget deficit, a credit ratings agency said on Wednesday.
In a report, Moody’s Investors Service took note of the national government’s full-year fiscal performance, which, at 3.2 percent of gross domestic product (GDP), was higher than the programmed 3.0 percent and also an improvement from the previous year’s 2.2 percent.
The budget deficit hit P558.3 billion last year, well above the P526.8-billion cap and also higher than the 2017 result of P350.6 billion.
Revenue collections reached P2.85 trillion, exceeding the P2.82-trillion target, but spending was more than the programmed P3.35 trillion at P3.40 trillion.
“Although wider budget shortfalls typically reflect a credit-negative deterioration in other fiscal metrics, measures of the Philippine government’s indebtedness and debt affordability have remained stable or continued to improve,” Moody’s said.
It pointed out that the fiscal deficit did not widen so much that it increased government debt, which declined to 41.9 percent of GDP in 2018 from 42.1 percent in 2017. This contrasted with increases for Baa2-rated peers such as Colombia (Baa2 negative), India (Baa2 stable) and Indonesia (Baa2 stable).
Moody’s added that the Philippines’ revenue gains led to a ninth consecutive year of improving debt affordability, in contrast with Baa2-rated peers.
The debt watcher also stressed that the debt-to-GDP ratio remained stable despite the Philippine peso’s 5-percent depreciation against the US dollar last year. It noted that 33 percent of government debt was denominated in foreign currency as of end-2018.
Interest payments as a share of revenue, meanwhile, fell to 12.3 percent in 2018 from 12.6 percent in 2017.
“Improved revenue more than offset higher coupon rates on newly issued domestic debt, primarily reflecting higher inflation as well as increased foreign debt servicing amid peso weakness,” it said.
Because of a stable debt burden, stabilizing market interest rates and improving revenue, the credit rater expects the Philippines’ debt affordability to continue to converge toward the Baa2 peer median.
It also forecast a continued increase in revenue generation this year because of a scheduled increase in excise tax rates under the Tax Reform for Acceleration and Inclusion law.
Moody’s, however, warned that the government could be challenged to fully execute this year’s spending budget of 19.3 percent of GDP, partly because of delays in the passage of the 2019 budget law.
“Although the government operated on a re-enacted 2018 budget in the interim, spending on new appropriations was prohibited, while the budget law passage was delayed,” it said.
“Moreover, electoral rules prohibit disbursements related to public works, hiring or moving government workers in the 45-day period ahead of mid-May mid-term elections.”
After months of delays, Congress finally ratified the 2019 national budget last month but the measure has yet to be signed into law by President Rodrigo Duterte.
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