THE national government will return to its pre-pandemic debt and budget deficit levels as early as 2024 or by 2025, according to Ministry of Finance (DOF) projections.
Finance Secretary Carlos Dominguez III said they were working on a budget consolidation plan to reduce the government’s debt and budget deficit levels as a proportion of the economy.
“It is an evolving plan, which we will leave to our successors in the next administration. It is our duty and we will do it, ”Dominguez told reporters.
From a record debt-to-GDP ratio of 39.6% in 2019, the country’s debt as a percentage of the economy jumped to a 14-year high of 54.6% in 2020, as the government increased borrowing to finance the Covid-19 pandemic response war chest.
Meanwhile, the country’s budget deficit in 2019 stood at 3.4 percent of GDP or 660.2 billion pesos in 2019, and it more than doubled to a record 7.6 percent of GDP or 1 , 37 trillion pesos last year.
Under Secretary of Finance and Chief Economist Gil Beltran cited DOF projections that the national government would revert to its old deficit and debt levels after three to four years if the recommended fiscal measures are adopted early by the next one. administration and whether the economy is recovering quickly.
“So far our estimates show that if we can get all these measures adopted, we are now in 2021, by 2025 we will be back to our usual deficit, if we get all these measures adopted,” he said. he told reporters.
Pressed to find out what these tax measures are, Beltran separately told BusinessMirror that he would leave it to the next administration to announce them.
Regarding the national government’s debt-to-GDP ratio, Beltran also told reporters he still sees it exceed the internationally accepted 60% threshold in the coming years before returning to its pre-pandemic level by 2024. or 2025.
“Because we expect the economy to skyrocket as soon as the blockages are lifted. Because the factors of production are there, it’s just that they can’t move. Once you remove the blockages, checkpoints and restrictions, the economy will boom, ”Beltran said.
To reduce the country’s deficit-to-GDP ratio, Dominguez said the government “may have to make two options,” which include cutting spending and increasing income.
“But I’m telling you that it’s going to be very difficult, this period of fiscal consolidation is going to be rather difficult. But the good thing for us is that the interest rates are low. They haven’t increased much.
With fiscal consolidation, the CFO also said they expect the Philippines to once again join the leaders compared to their peers.
“We expect to return to the 2016-2019 trend where we were not just au pair, we were among the leaders of our peers. And as we’ve pointed out all the time, this pandemic didn’t destroy the factors of production, it just quarantined it. So once that gets released, we’ll have a very, very healthy pace, ”Dominguez said.
“So we have to see how the plan evolves, like I said, [it] depends on the duration of this pandemic. Fortunately, we are in a relatively good position, not in an absolutely good position, a relatively good position, ”he added.
In July, international credit observer Fitch Ratings confirmed the country’s rating at “BBB”, but revised its outlook from “stable” given in January of this year to a “negative” outlook.
A negative outlook on a state’s credit rating means it could potentially face downgrade if its dynamics and economic parameters continue to deteriorate over the policy horizon.
The credit observer said the country’s fiscal finances have weakened, both in absolute terms and relative to peer medians, due to the pandemic.
He said he would monitor the evolution of the budget deficit and debt levels, as the balance between fiscal consolidation and ongoing public spending to support the economic recovery will be an important factor for the rating.