Fitch unit: Philippine fiscal recovery likely to be slow as growth outlook clouds
MANILA, Philippines — Putting the government’s fiscal position back to healthy levels could take longer than expected, a Fitch unit said, as a projected growth slowdown strains public coffers at a time the state is ramping up spending to meet the country’s infrastructure needs.
In a commentary sent to journalists on Friday, Fitch Solutions said it now forecasts the Philippines’ budget deficit, as a share of the economy, to settle at 6.4%, bigger than the government’s own projection of 6.1%.
The "less optimistic" outlook stemmed from expectations of slowing economic growth due to red-hot inflation and ultra-tight monetary policy. This, plus a new round of cuts to personal income tax, could weigh on revenues, the Fitch unit explained..
A weak revenue collection means the Marcos administration would have to resort to borrowings to bankroll its spending priorities, which include a commitment to sustain an aggressive infrastructure program that, President Ferdinand "Bongbong" Marcos Jr. said, is meant to attract more foreign investors.
That said, Fitch Solutions forecasts debt, as a share of the economy, to “decline only slightly” to 59.8% in 2023 from last year’s 60.9%, which already breached the 60% threshold deemed manageable for emerging economies like the Philippines.
Gross domestic product expanded 7.6% year-on-year in 2022, better than the 5.7% growth recorded in 2021.
"We think that a sharper narrowing of the budget shortfall in 2023 is unlikely due to slowing growth and elevated expenditure levels," the Fitch Solutions said.
Moving forward, Fitch Solutions said persistent inflation could see the government provide more subsidies to ease the cost of living. That would in turn result in the fiscal deficit being larger than current expectations.
Furthermore, the Fitch unit also warned that a more pronounced economic slowdown could see the government increase expenditure spending to power up growth, likely adding pressures on the state’s balance sheet.
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