Budget deficit narrows when pandemic response should widen the gap

MANILA, Philippines — The Duterte administration’s budget deficit barely widened in March and fell remarkably below limit for the entire first quarter, a sign that the government has so much catching up to do in spending to counter the impact of the coronavirus disease-2019 (COVID-19) pandemic. 

The deficit— which indicates the government spent beyond its means— stood at P59.5 billion in March, only about P1 billon wider than the P58.4 billion, the Bureau of the Treasury reported on Monday.

From January to March, the deficit reached only P74 billion, below last year’s P90.2 billion and way behind the P332.9-billion cap set for the period. 

The data is the latest evidence of a government struggle to spend on programs meant to cushion the adverse effects of the virus and the lockdowns imposed to control its spread on the populace. All while revenues were plummeting due to dismal business environment. Analysts, who expected a wider deficit, were not impressed.

“With the unprecedented crisis such as we are currently in, it should merit an unprecedented spending. Spending too much compared to spending too little, at this point, borders morality,” said Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, in an online exchange.

Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said the “single-digit” spending growth for the first three months was “wanting and probably way behind what we saw from our Southeast Asian peers” at the time of a health crisis. 

Slow spending

In March, data showed expenditures rose nearly 16% year-on-year, with actual spending from state agencies up 18%. That brought the first-quarter tally up 9.2%, but 14.5% below the programmed outlay for the period.

Neri said a supplemental budget, which central bank Governor Benjamin Diokno had called for, has become “more urgent and more compelling.” “We need to work together to speed up the enforcement of existing program for the remaining weeks of the second quarter and second half,” he said.

As far as the spending side is concerned, the latest Treasury report appears to have not fully capture disbursements related to the crisis. For one, the first tranche of P100 billion for the social amelioration program was not released until the last week of March, spending which still took time.

Other social programs were also too small in scale to increase spending numbers. For instance, the labor department’s COVID-19 adjustment program for formal workers only had an initial budget of P1.6 billion, while that for informal workers was only allocated P1 billion. The programs had since received additional funding, but not until May.

“If the money doesn’t make it to people who need it the most, the stimulus is useless. I think the pandemic can amplify our absorptive capacity weaknesses,” Asuncion said. 

Revenues take a hit

On the flip side, the impact of the Luzon lockdown enforced starting March 17 began to be felt by revenue agencies. In March, collections by the Bureaus of Internal Revenue and Customs dropped 10.7% and 9.4% year-on-year, as businesses were shuttered, and consumers were told to stay home.

However, the declines at BIR and Customs were more than offset by the doubling of non-tax revenues, which were buoyed by a six-fold uptick in Treasury collection. The bureau said this was a result of “dividends” and “advances” remitted by government corporations as part of fund-raising efforts for COVID-19 response.

In total, revenues rose 19.7% year-on-year in March, and a more tempered 12.7% for the first three months, data showed.

“These [non-tax revenues] are one-off sources. The national government needs to return to the markets for additional financing to fund all the ‘whatever it takes’ programs,” Neri said.