PHL budget gap hits new record in 2021

THE national government capped 2021 with a new record-high budget deficit of P1.67 trillion, as the government continued to spend more for its Covid-19 initiatives, including vaccine procurement and support for the lending assistance programs of government financial institutions.

With government spending outpacing its revenue collection, budget deficit as a share of the economy last year also soared to an unprecedented level of 8.61 percent of GDP, based on data from the Bureau of the Treasury.

While these levels are below the government’s deficit ceiling for the year pegged at P1.86 trillion or 9.5 percent of GDP, the figures have eclipsed the previous record-high deficit of P1.37 trillion, or 7.6 percent of GDP, in 2020.

Government expenditures in the second year of the Covid-19 pandemic soared by 10.6 percent to P4.68 trillion from P4.23 trillion a year ago, but this is slightly below the P4.74 trillion full-year program.

Apart from continued spending for various recovery measures, infrastructure and other capital expenditures, as well as higher internal revenue allotment shares of local government units following the implementation of the Supreme Court’s Mandanas ruling contributed to the growth in disbursements for the year.

Meanwhile, revenues collected by the government rose by 5.24 percent to P3 trillion from P2.86 trillion in 2020.

Bulk of the revenues or P2.078 trillion came from the Bureau of Internal Revenue (BIR), but the agency narrowly missed its full-year target of P2.081 trillion. However, this is 6.51 percent higher than its P1.95-trillion collection last year.

The Bureau of Customs (BOC) raked in P643.6 billion, exceeding its P616.7-billion target for the year and also up from its actual collection of P537.7 billion last year.

For December alone, the budget shortfall widened to P338 billion from P302.6 billion in the same month last year as expenditures grew while revenues dropped.

In its December 2021 meeting, the government’s economic team projected the budget deficit for this year to reach P1.65 trillion or 7.7 percent of GDP.

Economists also said they expect a narrower budget deficit-to-GDP ratio this year as the economy recovers.

UnionBank Chief Econonist Carlo Asuncion said the deficit ratio this year will ease to 8.1 percent of GDP, lower than last year’s 8.61 percent.

“It’s better than the 2021 actual. We think spending pressures are still there but the economic recovery can easily offset revenue shortfall. However, careful consideration should still be applied as the country navigates through another external supply shock, that is, Ukraine invasion,” Asuncion told the BusinessMirror.

ING Bank economist Nicholas Mapa said he expects both the deficit and debt ratios to improve as revenue collections normalize and the economy grows faster.

“[The] incoming administration, however, must balance the need to address these fiscal concerns with the need to carry out crucial spending to still support the growth momentum. Failure to reign in or rationalize spending may lead to these ratios increasing or not falling fast enough to escape possible downgrades from credit ratings agencies.”

Ateneo de Manila University John Gokongwei School of Management Dean Luis F. Dumlao said the reopening of the economy would pave the way for the narrowing of the debt and deficit ratios.

He expects the deficit ratio to go back to pre-pandemic levels or to 3 percent as soon as 2023.

As for the debt-to-GDP ratio, Dumlao said it may take more than a decade to bring this down to prepandemic levels or to 40 percent.

Image credits: Walter Eric Sy |

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