THE budget deficit targets in the next two years won’t have a negative impact on Philippine creditworthiness, according to a Fitch-owned think tank.
From a 0.9-percent budget shortfall in 2015, the Development Budget Coordination Committee (DBCC) has raised the deficit ceiling to 2.7 percent of gross domestic product (GDP) this year and 3 percent next year to support infrastructure spending, human capital and social protection.
The deficit target this year is equivalent to P388.87 billion, on a revenue goal of P2.57 billion against expenditure of P3 trillion.
“A stronger spending program could have a positive structural impact as long as the government allocates the funds to productive areas—such as infrastructure, agriculture and education—that will help to lift productivity across the economy,” BMI said in a report published Friday.
“To this end, the government aims to increase infrastructure spending to as much as 7 percent of GDP, and is planning a 25-percent increase in the police budget and a 31- percent increase in education spending,” it added.
While ramped up public spending requires higher funding, BMI said the situation does not necessarily mean
risk to the country’s credit credit ratings because debt as a percentage of GDP remains manageable.
“Although the fiscal deficit will widen, government debt stood at very manageable 44.5 percent of GDP, (36.3 percent on a consolidated basis) at the end of 2015,” it noted.
As of the first half of 2016, the ratio of general government debt to the country’s GDP significantly dropped to 43 percent from 44.9 percent a year earlier.
“This suggests that there is little risk to the country’s creditworthiness from slightly larger deficits,” it said.
The Philippines has an investment grade rating from Fitch Ratings (BBB-), Moody’s Investors Service (Baa2) and Standard & Poor’s (BBB).
The Duterte administration registered a budget deficit of P50.7 billion as of end-July –its first month in office – up 57.50 percent from P32.19 billion a year earlier and by 12.19 percent from P45.19 billion in June 2016.
The figures reflected lower revenue and increased expenditure.
Still, the deficit in July was P35.46 billion or 41 percent short of the P86.12 billion target for the month.
The cumulative deficit in the first seven months the year stood at P170.98 billion or 827 percent higher than the P18.45 billion recorded a year earlier.
As of end-July, the deficit was P7.99 billion or 4 percent short of target in the first seven months and 56 percent short of the year’s P388.87 billion as programmed by the government.
The full-year deficit is equivalent to 2.7 percent of GDP.