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Deficit-to-GDP ratio still a concern, analysts say


By Luisa Maria Jacinta C. Jocson, Reporter

THE deficit-to-gross domestic product (GDP) ratio may have slipped as of end-June, but analysts said it is still a cause for concern as it should have been driven by fiscal consolidation rather than slow spending.

“Although the low deficit-to-GDP ratio seems to be a positive development, its primary driver — government underspending — is a cause for concern, especially with regard to economic performance,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

The National Government’s (NG) deficit-to-GDP ratio slipped to 4.8% as of end-June from the 6.5% ratio in the same period in 2022.

This year, the government has set a budget deficit ceiling of P1.499 trillion, equivalent to 6.1% of GDP.

“Lower deficit- and debt-to-GDP ratios are ideal but the lower deficit numbers simply reflect underspending, which was a main reason for the second-quarter GDP growth miss,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

Data from the Bureau of the Treasury (BTr) showed that the budget deficit in the first half narrowed by 18.17% to P551.7 billion from P674.2 billion a year ago. However, it fell short of its program for the period by 28.49%.

The BTr attributed this to slow state spending, which inched up only by 0.42% to P2.41 trillion and fell short of its program by 6.6%.

“Underspending is a major concern for the government as they vowed to improve disbursement in the second half of the year,” Mr. Mapa added.

The Philippine economy expanded by 4.3% in the second quarter, much slower than the 6.4% growth in the first quarter and 7.5% in the same period last year. This was mainly attributed to the weak consumption and decline in government expenditures.

Government spending in the second quarter contracted by 7.1%, a reversal of the 10.9% growth a year ago and the 6.2% growth in the first quarter.

“If the GDP is increasing, the lower deficit-to-GDP would have been a favorable development. However, since the GDP is contracting, a lower ratio becomes a negative indicator,” Ateneo de Manila University economics professor Leonardo A. Lanzona said in an e-mail.

In order to address sluggish spending, the government has ordered agencies to come up with a catch-up plan to accelerate expenditures and utilize their budgets more efficiently.

Ms. Velasquez said that the government’s plan to expedite spending for the remainder of the year could lead to a higher deficit-to-GDP ratio by the end of the year.

“We expect the government to ramp up spending in the coming months to catch up with the fiscal program, which could lead to wider budget deficits and potentially drive up the deficit-to-GDP ratio,” she said.

“Moving forward, we think that the medium-term fiscal program, where government programs a slower and consistent fiscal consolidation until 2028, is more beneficial in terms of balancing fiscal prudence and ensuring sufficient support for economic growth,” she added.

Mr. Mapa noted the government should improve fiscal consolidation efforts.

“Authorities must strike a balance between fiscal consolidation (better debt and deficit metrics) and investing in the economy as this will ensure a more resilient growth engine for the years to come,” he added.

Economic managers are targeting 6-7% GDP growth this year and 6.5-8% for 2024 to 2028.

Under the medium-term fiscal framework, the government is aiming to bring the debt-to-GDP ratio to below 60% by 2025 and reduce the deficit-to-GDP ratio to 3% by 2028.

“The recent statements on increasing or expanding government expenditures are clear departures from the official general policy of not spending dating back from the Duterte administration. As the government now begins to see the folly behind their strategy, it is then likely that the ratio will begin to increase up to the end of the year. But, with the growth momentum now dissipated, the damage has been done,” Mr. Lanzona added.

Neil Banzuelo

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