A first look at the medium-term fiscal program

PHILIPPINES - In Brief 12 Jul 2022 by Romeo Bernardo

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Last Friday, the Development Budget Coordination Committee (DBCC), an inter-agency body made up of the departments of budget, finance, planning and the BSP, presented the new administration’s fiscal program for 2022 to 2028. The medium-term program hinges on the economy sustaining its growth clip at 6.5% to 8% starting 2023 and inflation returning to the BSP’s 2% to 4% target starting 2024. Given nominal GDP growth of 9% to 10%, the fiscal program aims to reduce the overall national government (NG) budget deficit, which reached 8.6% of GDP last year, by 1ppt every year until it falls to 3% of GDP, the pre-pandemic deficit target. With this performance, it expects the NG debt ratio, which is anticipated to creep up to 61.8% of GDP this year, to gradually drop to 52.5% of GDP by the end of the administration. The reduction in the deficit and debt ratios to GDP will be done through a combination of raising revenues and cutting expenditures relative to GDP. The revenue effort is programmed to rise from 15.5% last year to 17.6% by 2028 or an increase of 2.1ppt, while spending as a share of GDP is programmed to fall from 24.1% last year to 20.6% in 2028, equivalent to a decrease of 3.5ppt. Despite the reduction in expenditures, government intends to keep infrastructure spending at 5% to 6% of GDP. Our view As far as the numerical targets are concerned, the latest medium-term fiscal program is basically an extension of the last one, crucial mainly in terms of signaling to markets that the new administration is committed to pursuing fiscal consolidation. The 2028 target for the debt ratio, i.e., 52.5% of GDP, is certainly more realistic and supportive of post-pandemic recovery...