Modest state spending shrinks budget deficit in July

MANILA, Philippines — The Duterte administration posted a smaller budget deficit in July, as the government tries to temper the growth of debt by reining in spending at a time the country’s pandemic needs continue to grow.

The national government’s budget gap narrowed 13.57% year-on-year to P121.2 billion in July, the Bureau of the Treasury reported Tuesday.

The deficit — which means the state is spending beyond its means — shrank 19.1% month-on-month in July. In the first seven months, the budget gap stood at P837.3 billion, 19.50% wider compared with the same period last year.

The latest data showed the extent of the pandemic’s damage on the state’s balance sheet. The Treasury said the budget shortfall in the first half already accounted for 8% of the country’s gross domestic product, and economists like Nicholas Mapa of ING Bank in Manila expect the government to continue limiting spending to avoid incurring more debts and breaching its 9.3% deficit cap for the year.

“We can expect this trend to continue as authorities attempt to bail water and mitigate the much wider deficit,” Mapa said.

Figures showed the government spent P377.3 billion in July, up by measly 0.69% year-on-year as ”higher personnel services expenditures and infrastructure outlays” were muted by base effects from last year’s cash aid program for locked-down Filipinos.

“Considering that the weather in July was not very friendly for government construction spending, national government outlay for July appears to be relatively hefty,” Jun Neri, chief economist at Bank of the Philippine Islands, said in a Viber message.

On the other hand, revenues amounted to P256.1 billion in July, up 9.21% year-on-year. Notably, collections of the Bureau of Customs grew at an annualized rate of 14.46% last month as the agency “benefitted from the sharp depreciation of the peso,” Neri said.

Moving forward, ING Bank’s Mapa believes the budget deficit will continue to balloon this year but mainly because of weak revenues rather than a solid spending growth.

“On the whole, the deficit will likely widen further in the coming months as revenue collections remain challenged with the economy stuck in recession.  Furthermore, as government cuts back on spending outside the spike expected in August (ayuda), we are likely to see growth momentum stall further with the economy likely missing the twice downgraded growth target of 4-5%,” Mapa explained.