MANILA – Fitch Solutions sees a wider budget gap for the Philippine until 2022 due to the expected rise in expenditures despite the projected drop in revenues, but said risks have declined amid the pandemic.
In a report dated Sept. 30, the unit of Fitch Group forecasts the government’s budget deficit to rise to 9.3 percent of gross domestic product (GDP) this year from an initial projection of 8 percent “due to the outlook for revenue deteriorating under our revised growth outlook.”
The budget deficit forecast for next year is 8.3 percent of GDP while 7.1 percent of GDP for 2022.
These are wider than the earlier forecast of 3.5 percent and 3 percent forecasts for 2021 and 2022, respectively.
Fitch Solutions has revised its growth forecast for the domestic economy this year from -2 percent to -9.1 percent after noting that a recovery in the second quarter is now unlikely, with the base case scenario of gradual resumption of economic activity by year-end.
Its 2021 growth forecast has been changed from a 6.5-percent recovery to a 6.2-percent output.
The report said the budget gap forecast for next year took into account the government’s spending plan as well as “a belief that the government will maintain a loose fiscal stance in the coming years due to the sharp economic downturn in 2020.”
The government’s proposed 2021 national budget amounts to PHP4.506 trillion, which accounts for about 21.8 percent of domestic output and is 9.9-percent higher than this year’s PHP4.1 trillion.
The revenue target for next year is PHP2.717 trillion from this year’s PHP2.519 trillion, while the disbursement target is PHP4.467 trillion from this year’s PHP4.335 trillion.
Aside from the budget for the healthcare system, education, and the priority infrastructure program, Fitch Solutions forecasts the government to implement additional fiscal stimulus “as uncertainty surrounding the pandemic recedes and investor appetite for risk assets picks up.”
It said that “with elections due in 2022, we expect legislators to speed up support packages and spending in an effort to tackle unemployment, boost incomes and confidence ahead of voting.”
Fitch Solutions, however, said there are “risks from politicking potentially delaying an agreement on the budget for the year.”
“While we forecast a wider deficit, overall risks to the fiscal position remain relatively contained. As noted, risk premia attached to the Philippines has declined, reducing government borrowing costs, despite the pandemic,” it added. (PNA)
