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‘Modest’ deficit impact seen if support measures continue

THE narrowing of the fiscal deficit will likely be modest in the Philippines as the authorities keep propping up the economy while vaccination rates are low, Fitch Ratings said.

Fitch projects fiscal deficits to narrow in nearly all Asia Pacific economies as they withdraw relief measures and as government revenue rises on improving domestic demand.

“This should allow consolidation strategies to be implemented after delays in 2021 associated with the spread of the Delta variant,” Fitch said in a note Wednesday.

But this narrowing will be more modest in the Philippines, Vietnam, and Indonesia, where recoveries are still vulnerable to pandemic-related disruptions.

Emerging markets in the Asia Pacific have been restrained in providing relief packages, the ratings firm added.

In contrast, support packages from developed economies like Australia, Japan, and Singapore are larger, with Fitch expecting steady consolidation efforts and better public finances.

Fitch Ratings retained its negative outlook for the Philippines, citing its high public debt ratio and uncertain recovery trajectory.

Last month, Fitch said public debt could lead to a credit rating downgrade for the Philippines in the next few years.

Outstanding government debt rose to P10.2 trillion last year from P8.2 trillion in 2019 as the authorities ran up big deficits to battle the coronavirus.

The Philippines’ debt-to-GDP ratio was 63.1% at the end of September, the highest in 16 years.

Fitch Ratings said that the scarring effects from the pandemic will delay economies in their return to pre-pandemic growth trajectories, although developed countries will likely see less scarring than expected.

“Emerging markets such as the Philippines, Indonesia and India will see scarring, mitigated by greater productivity from structural reforms,” it said.

Separately, former Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo said the Philippines was on its fifth year of reforms to open up its economy when the Asian Financial Crisis hit.

He called the crisis a “rude awakening” as reforms turned out inadequate.

“The (Asian Financial) crisis made us realize that we have not done enough or we still have many more things to do to achieve greater traction of the economy and stronger resilience against shocks,” he said at an event organized by the ASEAN+3 Macroeconomic Research Office Tuesday.

The Philippine economy after addressing “macroeconomic imbalances and structural rigidities” at the time, he said, significantly improved in terms of productivity and efficiency.

“Our growth potential has expanded, leading to higher employment, higher public spending for public services and poverty reduction. We were resilient during the global financial crisis, but I think we could’ve been worse off during this pandemic.” — Jenina P. Ibañez

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