Budget reverts to deficit in May

MANILA, Philippines — The government’s fiscal position reverted to a P147-billion deficit in May, which will require the next administration to cut state spending and avoid borrowing again just to cover the budget gap.

Experts interviewed by The STAR said the incoming administration of president-elect Ferdinand Marcos Jr. should trim public expenditures to minimize the budget deficit to pre-pandemic levels by the end of his term in 2028.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said public officials should begin by reducing their purchases of new vehicles and the frequency of their travels abroad.

Ricafort said government resources should be spent on productive sectors, including education, health and infrastructure, which produce long-term gains for the economy. To do this, he proposed that the Marcos administration reorganize certain agencies and eliminate non-essential posts.

“Anything considered as wasteful spending or unnecessary leakage in government expenditures (should be removed). Proposals include reduction in the purchase of new vehicles and other less essential equipment that are costly, reduction in less essential travels, and redundant positions, for redeployment elsewhere,” Ricafort said.

“There would be a need to rationalize various government agencies to ensure (their) continued relevance, consistent with the investment approach on government expenditures,” he added.

Ateneo de Manila University economics professor Leonardo Lanzona said Marcos should study the costs and benefits of big-ticket projects, particularly those financed by China, and delay the implementation of some of them depending on their impact.

“Some of the big-time projects under Build Build Build can be shelved, especially those funded by China that have higher interest rates. The criterion is to consider both the expected costs and benefits: those that entail substantial costs, but with limited benefits should be the first to be cut,” Lanzona said.

A study by Washington-based Center for Global Development concluded that Chinese loans are attached with interest rates above those of World Bank’s. Likewise, borrowers are asked to pay the loans in a short period of time in compliance with the maturity policy imposed by Beijing.

“Our analysis demonstrates that China’s official financing is less concessional than World Bank financing in comparable settings. China provides loans with systematically higher interest rates, shorter maturity lengths, and less generous grace periods,” the study read.

For the Philippines, the study reported that loans from China carry an average of three percent in interest rate and eight years in maturity, while those from the World Bank bear an average of 2.85 percent and 14.2 years, respectively.

Based on records, loan commitments from China to the Philippines stand at $1.1 billion or close to P59 billion for the completion of multiple infrastructure like the Chico River Irrigation Project, Kaliwa Dam Project, and the Philippine National Railways South Long Haul Project.

“More crucial is to understand how these loans can contribute to productivity, [such that] those that have lower benefits should be discontinued,” Lanzona said.

Even though revenue collections increased and state spending declined in May, the government still ended up with a deficit of P146.79 billion. During the month, revenues rose by 19 percent to P304.92 billion, while expenditures dipped by one percent to P451.7 billion.

According to the Bureau of the Treasury, tax collections spiked by 22 percent to P285.56 billion in May from P234.36 billion a year ago. Both the Bureau of Internal Revenue and the Bureau of Customs grew their tax earnings by 18 percent and 36 percent, respectively.

On the other hand, primary spending slid by two percent to P417.87 billion from P427.79 billion, while interest payments jumped by 17 percent to P33.83 billion, from P29.83 billion.

On a yearly level, the government has narrowed the budget gap by 19 percent to P458.7 billion as of May from P566.2 billion during the same period in 2021, as the 16 percent rise in revenue collections outpaced the five percent increase in public spending.

From a record 8.6 percent of the economy last year, the deficit is projected to trend downward to 7.7 percent in 2022, 6.1 percent in 2023, 5.1 percent in 2024 and 4.1 percent in 2025.