Deficit-to-GDP ratio eases to 6.5% in Q3  

MANILA, Philippines — The share of the budget deficit to the country’s output slightly softened to 6.5 percent in the third quarter, with a further downtrend seen in anticipation of continued economic growth.

Data from the Department of Finance showed that the deficit, when measured against gross domestic product (GDP), eased to 6.5 percent in the third quarter from 6.6 percent in the second quarter.

This is also significantly smaller than the 9.2 percent deficit-to-GDP ratio in the same period last year.

As of the end of the third quarter, the country’s deficit-to-GDP ratio stood at 6.5 percent.

Rizal Commercial Banking Corp. chief economist Michael Ricafort attributed the lower deficit-to-GDP ratio to the continued reopening of the economy, which allowed the government to ramp up its tax and revenue collections.

He said the absence of lockdowns for the entire year made it possible for the government to cut down on its expenditures, particularly on financial assistance to vulnerable groups.

Data from the DOF showed that total expenditures as a percentage of GDP went down to 24.2 percent from 25.3 percent year-on-year. On a quarterly basis, it inched up from 24.1 percent.

On the other hand, revenue effort increased to 17.7 percent of GDP while tax effort improved to 16.1 percent.

The latest ratio also puts the government in a better spot to hit its target of slashing the deficit-to-GDP ratio to 7.6 percent from the record 8.6 percent last year.

“No lockdowns as a policy priority of the new administration, as well as commitment to tax and other fiscal reform measures will help narrow the budget deficit and slow down incremental borrowings and outstanding debt,” Ricafort said.

Ricafort warned of risk factors that might impact the target, such as higher commodity prices and rising interest rates that could put an upward pressure on government expenditures.

Nonetheless, he noted that the downtrend in the deficit-to-GDP ratio would continue amid sustained economic growth, especially with the surprise 7.6 percent GDP growth in the third quarter.

From 7.6 percent this year, the administration’s economic team aims to cut the deficit-to-GDP ratio to 6.1 percent in 2023 and further trim it to 5.1 percent by 2024.

Continued downtrend is expected by 2025 at 4.1 percent and further down to 3.5 and 3.2 percent by 2026 and 2027, respectively.

By the end of the Marcos administration, the country’s deficit-to-GDP ratio is targeted to be at the three percent level in 2028.