The government may have to spend more than planned against the coronavirus disease 2019 (Covid-19) pandemic if the Philippine economy remains in recession next year, Fitch Ratings warned on Tuesday.
In a statement, the credit ratings agency said the government’s record of macroeconomic management “lends credibility” to the projections it laid out in the proposed 2021 national budget.
That budget, worth P4.50 trillion and approved by President Rodrigo Duterte last month, is equivalent to 21.8 percent of the country’s gross domestic product (GDP) and 9.9 percent wider than this year’s P4.10-trillion appropriations.
According to Department of Budget and Management, the 2021 budget aims to sustain government efforts to effectively respond to the pandemic by having state spending focus on improving health care systems, ensuring food security, increasing investments in public and digital infrastructure, and helping communities cope and prevail during the health crisis.
LIKE NORMAL Workers continue to build the Intramuros-Binondo bridge in Manila even as the country continues to struggle against the coronavirus pandemic. PHOTO BY ENRIQUE AGCAOILI
The interagency Development Budget Coordination Committee announced earlier that government disbursements were expected to expand next year to P4.47 trillion, or 21.6 percent of GDP.
Given projected revenues of P2.72 trillion, the budget deficit target over the medium term is estimated to increase to 8.5 percent in 2021.
But Fitch said “curtailing pandemic-related spending may be difficult if the economy continues to contract and fails to recover as fast as the authorities expect; indeed, if the recovery stalls, there may be pressure for even more fiscal stimulus.”
Currently, the Department of Finance is pushing for a P180-billion economic stimulus plan that incorporates around P40 billion in tax credits to the private sector.
Finance Secretary Carlos Dominguez 3rd said the plan already took into account the 16.5-percent contraction of the economy in the second quarter, and this would be maintained to keep the budget gap manageable.
Fitch said it would keep assessing the government’s ability to adhere to fiscal consolidation plans in its medium-term framework.
“Our baseline assumption that public debt will remain below the peer median level remains subject to risks, particularly those associated with the pandemic,” it added.
It forecasts the general government debt ratio to pick up to about 48 percent of GDP in 2020, still below the projected peer median of 51.7 percent, but above 2019’s 34.1 percent.
Economic managers earlier said they were confident that government debt would be kept within the 60-percent internationally recommended threshold by 2022.
“We will also assess the extent to which the crisis may affect the Philippines’ strong medium-term growth potential, which has supported the country’s rating,” Fitch said, adding that its projection that the country’s economy would contract by 4 percent this year “now appears optimistic and is likely to be revised down.”
The government expects domestic output to shrink by 5.5 percent before growing by 6.5 to 7.5 percent in 2021 and 2022.
Asked to comment, Dominguez said his department was “constantly monitoring the economy and evaluating alternatives.” He did not elaborate.