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FITCH Solutions is experiencing a wider budget deficit for the Philippines this year, revising its previous outlook as revenues are expected to decline further.
In a comment, Fitch Solutions Country Risk and Industry Research said Thursday that the Philippines is forecast to post a budget deficit of 9.3 percent of GDP this year, higher than the previous forecast of 8 percent.
The London-based think tank further expects the budget deficit to average 7.6 percent of GDP from 2020 to 2023 from 4.3 percent previously.
“The Covid-19 pandemic has caused a sharp slowdown in national economic activity and has required fiscal stimulus measures to support households and businesses amid closures and a sudden loss of income,” he explained.
At the end of August, the national government budget deficit grew more than six times to P740.7 billion from P120.4 billion in the previous year for the same period, according to the latest data from the Treasury Office.
Government spending increased 20.79 percent, while revenue fell almost 8 percent during the period.
“That said, unlike other Southeast Asian economies such as Thailand and Singapore, the Philippines has chosen to withhold large fiscal stimulus packages while the economy remains locked in. In fact, Finance Secretary Carlos Domínguez III has expressed his intention to maintain the space of fiscal policy to support the economy in the coming years, with the uncertainty about the pandemic still high, “said Fitch Solutions.
The think tank noted that the government announced the Bayanihan to Heal As One Act stimulus package in March to help an economy headed for a recession after imposing strict lockdown measures. About P200 billion, or 1 percent of GDP, went to support 18 million low-income households.
This was followed by another stimulus, which included a 120,000 million pesos credit guarantee scheme for micro, small and medium-sized enterprises.
Second stimulus
Meanwhile, the second stimulus package worth P166 billion was approved last month to help healthcare efforts and businesses.
“This has come hand in hand with monetary and macroprudential easing measures, which have sought to guarantee the supply of credit to the private sector, alleviate the broader financial conditions and ease the conditions of existing loans, in order to make payment requirements and payment more flexible. acknowledgment of non-compliance, ”the Fitch unit said.
In addition, the group said that Bangko Sentral ng Pilipinas’ P300 billion government bond purchase program, equivalent to 1.5 percent of GDP, eased financing of the broader budget deficit.
Despite stimulus packages and a growing budget deficit, Fitch Solutions noted that the government was still under pressure to provide further relief measures with the P1.3 trillion package introduced by the House of Representatives in June. This covers wage subsidies, financing for infrastructure projects, and financial assistance for small businesses.
“However, the government has taken a more prudent approach and decided not to extend Bayanihan Law 1 until such time as Law 2 was passed,” the think tank said.
“Indeed, policy makers have cited the need to maintain fiscal space to support the economy over a period of several years, noting that uncertainty remains about how long the pandemic will continue to affect the economy, the availability of a vaccine and the effectiveness of said stimulus while the economy was blocked, “he added.
Compared to neighbors such as Singapore and Thailand, the Philippines’ stimulus packages are “relatively small,” the Fitch unit said. The aforementioned countries have stimulus measures amounting to around 19 percent and 10 percent of GDP, respectively.
Last year, the budget gap stood at P660.2 billion.
