Fitch Ratings eyes stabilization of PH budget deficit

By Joann Villanueva

April 24, 2019, 8:46 pm

MANILA -- Fitch Ratings forecasts stabilization of the Philippine government’s budget gap at 3.2 percent of domestic output this 2019.

In 2018, the government slightly surpassed its budget deficit cap of three percent of gross domestic product (GDP) after it reached 3.2 percent due to an increase in spending, particularly on infrastructure projects.

Data from the Bureau of the Treasury (BTr) show that budget deficit amounted to PHP558.3 billion last year, higher than the previous year’s PHP350.6 billion and the PHP523.7 billion ceiling.

Fitch Ratings, in a report issued Wednesday, April 24, 2019, however, revised its government revenue-to-GDP forecast this year from 16.5 percent to 16.2 percent after it slashed its growth forecast for the country this year from 6.6 percent to 6.2 percent because of the delay in the approval of the national budget, which is expected to take its toll on the economy.

“We think the budget delay is also likely to lead to lower government spending in 2019,” it said.

The Bicameral Conference Committee approved the proposed PHP3.757-trillion national budget last February 8, more than two months behind its expected approval.

And because of issues on some projects and the changes made by members of the House of Representatives, President Rodrigo R. Duterte was able to sign the national budget into law only last April 15, with veto on about PHP95.3 billion worth of projects included by some Congressmen.

Fitch Ratings explained that its ratings on the country “balance favorable growth prospects, lower government debt and a net external creditor position against lower per capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers.”

It expects the budget delay to negatively hit domestic expansion since public spending has been a major growth driver of the domestic economy in recent years.

External factors like the trade tensions between US and China and the slower growth of the Chinese economy along with slower expansion of remittances from Overseas Filipino Workers (OFWs) are also seen as risks to Philippines’ gross domestic product (GDP).

It, however, noted that “slowing growth and interest rate hikes totaling 175bp by the central bank in 2018 have caused overheating pressures to subside.”

Last year, the Bangko Sentral ng Pilipinas (BSP) increased its key policy rates by 175 basis points to help address the elevated inflation rate, which peaked at 6.7 percent in September to October 2018. (PNA)