Department of Finance (DOF) Secretary Benjamin E. Diokno said that the government is firm on reducing the country’s budget deficit-to-gross domestic product (GDP) to three percent by 2028.

This after credit rating agency Fitch Ratings noted the country’s general government deficit to narrow to 3.8 percent of GDP by 2025, following the 5.4 percent to GDP in 2022 following stronger spending by local government units.

“This gradual consolidation reflects the Marcos, Jr. administration’s focus on fostering economic growth and development in the country,” Diokno said in a statement on Monday, Nov. 13.

“For its part, the DOF shall continuously support the gradual consolidation in the government’s deficit-to-GDP to 3.0 percent by 2028,” he added.

“This will guarantee the reduction of debt while still leaving adequate fiscal headroom to afford the required public investments needed to elevate our GDP to the target annual growth level of 6.5 percent to 8.0 percent in the medium term,” he further stated.

Fitch also projected for the country’s debt-to-GDP ratio to decline to 61 percent by 2025 after peaking from 2023 to 2024 due to strong GDP growth and narrowing fiscal deficits.

The country’s debt situation improved to 60.2 percent as of end-September from 61.0 percent in end-June, lower than the government’s Medium Term Fiscal Framework (MTFF) target of 61.2 percent for end-2023.

This means that the country is still on track to achieving the MTFF debt-to-GDP target of less than 60 percent by 2025 after peaking in 2022.

Further, Fitch has recently affirmed the Philippines’ ‘BBB’ credit rating with a stable outlook on the back of strong growth and declining debt.

“The favorable assessment demonstrates the Agency’s confidence in the country’s strong macroeconomic fundamentals, which can clearly be seen in our third quarter growth performance,” the finance chief said.

GDP growth

Fitch also forecasted the country to register a GDP growth of above six percent over the medium term, which is considerably stronger than the median three percent amongst ‘BBB’ peers.

“The economic team will remain faithful to the agenda outlined in the Medium-Term Fiscal Framework (MTFF) and the Philippine Development Plan (PDP) 2023-2028,” Diokno said

“We are also committed to implementing sound policies and reforms to drive more investments that will help continue the country’s robust economic growth in the medium term,” he added.

However, the credit rating agency noted the need to improve the country’s governance indicators and relatively low GDP per capita, down to 4.7 percent in the third quarter from 6.4 percent in the same quarter last year.

For the per capita income, the DOF estimates that the country will be able to reach the World Bank’s threshold for upper-middle-income status by 2025 through the Philippine Development Plan (PDP).

The PDP outlines strategies to deepen participatory governance, bolster public accountability and integrity, strengthen government functions, and support resilient public servants.

“There are three most crucial steps to sustaining the growth momentum. These include committing to spend at least 5 percent of GDP on infrastructure. We need to continue the implementation of structural reforms to liberalize the economy and open up sectors to foreign direct investments,” Finance Chief Diokno said.

“We must maintain macroeconomic stability by managing inflation, ensuring a sound external position, keeping a strong financial system, and pursuing fiscal consolidation to maintain fiscal sustainability,” he further said.

Moreover, the DOF will continue to work with Congress to legislate the proposed revenue reforms to sustain strong economic growth and increase government spending which include the Passive Income and Financial Intermediary Taxation Act and VAT on digital service providers.

These measures are seen to expand the tax base and help boost revenue collections by 0.5 percent to 0.6 percent from 2024 to 2028.