The Department of Finance (DOF) is crafting “a playbook” that the next administration may consider to relieve the fiscal stress caused by the prolonged pandemic on the national government.
With less than a year left before President Duterte's term ends in June next year, Finance Secretary Carlos G. Dominguez III said he has already began the transition period to the next administration.
Dominguez admitted that the government is going through “a difficult situation” and a credit rating downgrade is also possible.
“Before we end our term, the Duterte administration will make sure that we help the next President and the next generations address fiscal and economic risks,” Dominguez said.
Based on the DOF’s medium-term program, debt burden would peak at 60.8 percent of gross domestic product (GDP) next year, slightly above the 60 percent threshold that debt watchers consider as the manageable public debt.
Budget deficit is also projected to increase hitting 9.3 percent by year’s end, but the DOF expects this level narrowing beginning next year at 7.5 percent, 5.9 percent in 2023 and 4.9 percent by 2024.
“The priority we have is our fiscal consolidation program,” Dominguez said at a virtual forum hosted by the Financial Executives Institute of the Philippines, highlighting the need to wind down the government debt and budget deficit.
"Our very experienced team is already in the process of crafting a playbook for this suggestion to the next administration on what to do to recover from this fiscal situation where we found ourselves in,” the finance chief said.
Nicholas Antonio T. Mapa, ING Bank N.V. Manila senior economist, however, said the Philippines’ path to economic recovery will be challenging and compounded by the return of the twin deficits—bigger budget deficit and the revert to a current-account deficit.
Mapa noted that the country’s recovery momentum is “losing even more” due to “little improvement in economic indicators coupled with the threat of the Delta variant-induced spike.”
“The economic recovery remains challenging and could be further complicated by the return of twin deficits as we move into the second half of the year,” the ING economist said.
Dominguez said the current and next administrations should secure the country’s fiscal stability and boost the resilience of the Philippine economy against future economic shocks.
Last week, Fitch Ratings revised the Philippines’ credit outlook to “negative” from “stable” due to the national government’s weakening fiscal finances.
However, the Development Budget Coordination Committee (DBCC), an inter-agency today tasked to set the macroeconomic targets of the country, maintained its GDP goal of 6.0 percent to 7.0 percent for this year.
With a consumption-driven economy, the negative impact of the pandemic on the economy has been significant but this will only be temporary, Dominguez said.
For this reason, the DBCC kept the 7.0 percent to 9.0 percent GDP target for next year as well as 6.0 percent to 7.0 percent assumption for 2023 and 2024.
“The DBCC is optimistic that the country’s GDP may return to its pre-pandemic levels as early as 2022,” the committee said.
On the other hand, debt-watcher Moody’s Investors Service lowered its growth forecast on the Philippine economy for 2021 from 7.0 percent to 5.8 percent in 2021.
Moody’s noted that while recovery is expected following the historically large economic contraction last year, its “degree and pace” have remained uncertain.
“The degree and pace of recovery are subject to uncertainties related to the coronavirus pandemic, as well as the progress on vaccination,” Moody’s said.
For 2022, Moody’s expects the local economy to grow 6.5 percent, still below the government’s goal of 7.0 percent to 9.0 percent.