FISCAL CONSOLIDATION. How the government implement its fiscal consolidation program will be the major factor on how the budget gap will be addressed. Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said this will also get a support from the continued reopening of the domestic economy. (Photo courtesy of RCBC)

MANILA – Measures on how the government will implement its fiscal program to further boost the economy’s recovery and improve the state’s fiscal health are key factors in addressing budget gap, an economist said.

On Friday, the government reported lower budged deficit last August at PHP72 billion, 40.43 percent drop from year-ago’s PHP120.9 billion deficit.

In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the double-digit growth of government revenues last August, which surpassed the growth in expenditures, is a plus on the fiscal position.

Data released by the Bureau of the Treasury (BTr) showed that revenues of the Bureau of Internal Revenue (BIR), which collects around 70 percent of state revenues, expanded by 23.03 percent year-on-year in the eighth month this year to PHP228.9 billion.

Collections by the Bureau of Customs (BoC) during the same period posted higher growth of 47.84 percent year-on-year to PHP78.9 billion.

Expenditures also grew but at a lower rate of 6.39 percent to PHP404.5 billion.

As of end-August this year, total revenues rose by 18.09 percent year-on-year to PHP2.37 trillion and expenditures by 8.02 percent to PHP3.2 trillion.

This resulted in a budget gap of PHP833 billion, lower by 13.06 percent compared to the PHP958.2 billion deficit same period in 2021.

Ricafort said the rise in government revenues is a result of the continued reopening of the economy, which allowed more business to operate, thus allowing the government to collect higher taxes.

He said the government’s decision not to impose lockdowns also helped since this means lesser needs for cash aid to affected families.

These factors are, however, seen to have been countered by the higher inflation and interest rates, which hurt government coffers through higher interest payments, he added.

Meanwhile, Ricafort cited as a bright spot for fiscal management the drop in the proportion of debt to the economy’s output, which fell to 62.1 percent as of end-May 2022 from the 17-year high of 63.5 percent at the end of the first quarter in 2022.

He said “increased tax revenue collections would help cut the country's debt to below 60 percent of GDP (gross domestic product) by 2025 and narrow the budget deficit to 3 percent of GDP by 2028.”

“Sustaining the government’s improved fiscal performance in recent years/decades and relatively favorable credit ratings would depend on how the new administration and the economic team would ensure and implement intensified tax revenue collections, new taxes/higher taxes, anti-corruption/anti-wastage/good governance/rightsizing the government for more effective government spending,” he added.

Ricafort said fiscal performance would also depend on how the government sustain “economic and fiscal/tax reform measures for the coming years when economic conditions improve further to at least pay for the increased government expenditures/budget deficits/debts incurred since the pandemic started in 2020.”

The government incurred over PHP5 trillion worth of borrowings since 2020 to finance its programs targeted to address the impact of the virus-induced pandemic.

Ricafort said “the government's decision to maintain excise taxes on petroleum products would help sustain the government's recurring revenue collections and prevent unnecessary widening of the country's budget deficit, thereby helping limit/temper the increase in government borrowings and overall debt/debt-to-GDP ratio.”

He said continued reopening of the economy, with face-to-face classes scheduled to be fully implemented by November this year, will also benefit the government’s fiscal health.

“Thus, all of these measures to further re-open the economy towards greater normalcy would help narrow the country’s budget deficit and help also temper the growth in the government’s debt stock,” he added.

On Friday, the BTr reported the 1 percent month-on-month rise in the national government’s (NG) total liabilities as of last August to PHP13.02 trillion. (PNA)