Government targets to bring down deficit-to-GDP ratio to 3%

MANILA, Philippines — The incoming administration aims to reduce the share of the budget deficit to the country’s domestic output as measured by the gross domestic product (GDP) and lower the poverty rate to one of 10 Filipinos during the term of President-elect Ferdinand Marcos Jr., according to incoming Finance Secretary Benjamin Diokno.

Diokno said in an interview over One News’ ‘The Chiefs’ Thursday evening, that the incoming economic managers intend to bring down the deficit-to-GDP ratio to three percent through a fiscal consolidation plan.

The outgoing Bangko Sentral ng Pilipinas (BSP) governor said  he agrees with  Finance Secretary Carlos Dominguez III that there is a need for a fiscal consolidation plan to reduce the ratio of the budget shortfall to the GDP that is now in the neighborhood of seven to eight percent.

“Our target is that by the end of the term of President Marcos, the deficit-to-GDP ratio will be in the neighborhood of three percent. That is where we were before the crisis,” Diokno said.

From only 3.4 percent of GDP in 2019, the country’s deficit-to-GDP ratio swelled to 7.6 percent in 2020 and further to a record 8.6 percent in 2021 as the government spent more while revenue collections dropped due to the impact of the COVID-19 pandemic.

The Philippines exited the pandemic-induced recession with a GDP growth of 5.7 percent last year, reversing the 9.6 percent contraction in 2020 when the economy stalled due to strict COVID-19 quarantine and lockdown protocols.

The recovery gained momentum with a stronger-than-expected 8.3 percent expansion in the first quarter, faster than the 7.8 percent growth in the fourth quarter and reversed the 3.8 percent contraction in the first quarter of last year, as COVID-19 mobility restrictions continued to ease.

Diokno expects a faster growth in the second quarter, the highest growth in Asia.

The deficit-to-GDP ratio improved to 6.4 percent  at P316.8 billion in the first quarter.

The Department of Finance (DOF) aims to trim the deficit-to-GDP ratio to 7.7 percent or P1.67 trillion this year from a record high of 8.6 percent or P1.67 trillion last year.

Diokno said the target of trimming the deficit-to-GDP ratio to three percent is doable even with the current tax system.

However, Diokno said they would look into the  recommendations made by President Duterte’s economic team to determine which are doable.

The proposal of the outgoing economic managers includes new or higher taxes, prioritizing infrastructure spending, while slashing budgets on non-priority sectors.

“We have actually made a lot of reforms to the tax system. On the basis of that as long as the economy grows at six to seven percent, we won’t have any problems,” Diokno said.

Diokno said the current tax system gives the government the right level of revenues.

After trimming the deficit-to-GDP ratio to the pre-pandemic level of three percent over the six-year period, Diokno said the administration is looking at reducing the poverty level of the country to one of every 10 Filipinos by 2028.

“By that time, poverty in the Philippines will be just one out of 10 or even better,” Diokno said.

At a current poverty incidence of 23.7 percent in the first half of 2021, the number of poor Filipinos increased to 26.14 million, or 3.88 million more than the previous year’s 22.26 million.

Diokno said  the incoming administration aims to focus on agriculture which needs to grow by one or two percent as well as mining which has been neglected over the past few years.

He  said there is no need to panic over the country’s rising debt as a result of more borrowings to bankroll the government’s COVID-19 response measures.

The country’s debt-to-GDP ratio is expected to end at 60.9 percent or an all-time high of P13.42 trillion this year from a 16-year high of 60.5 percent or P11.73 trillion in 2021.

“The global average is that the debt-to-GDP ratio is around 250 to 300 percent. The US is 200 percent, Europe is more than 100 percent. So hindi ako natitinag dun sa 60 percent,” Diokno said.

The BSP chief cited the country’s robust foreign exchange buffer with the gross international reserves (GIR) level exceeding $106 billion or 10.5 months worth of payment for imports and services amid steady inflows from remittances from overseas Filipino workers (OFWs), business process outsourcing sector, and foreign direct investments (FDIs).