The Philippines' plan to narrow its fiscal deficit and reduce the share of public debt to its economy is expected to be sustained during the second half of President Ferdinand R. Marcos Jr.'s term, amid expectations that his political allies would retain the majority leadership in Congress next year.
In a Dec. 10 report, Capital Economics assistant economist Lily Millard cited that all seats in the Lower House plus half of the 24 senatorial posts will be up for grabs in the Philippine midterm elections to be held on May 12, 2025.
"Recent opinion polls show that leading candidates appear to be most aligned to President Marcos' coalition," Millard noted.
"As such, we do not expect large changes to the incumbent government's medium-term fiscal consolidation framework," Millard said.
Capital Economics said fiscal trajectory would be among the key issues to be faced by voters in the Philippines, Chile as well as Czechia during elections in these countries next year, citing "broad deterioration in fiscal health of many emerging markets' governments."
An earlier report by Capital Economics monitoring financial risk among emerging markets nonetheless showed that the Philippines has an overall low financial risk.
Specifically, banking, currency and sovereign debt risks in the country are all deemed to be low, based on Capital Economics' assessment as of end-October.
In a report, the Cabinet-level Development Budget Coordination Committee (DBCC) said the government is "on track" with its fiscal consolidation goals under the Marcos Jr. administration's centerpiece 2022-2028 Medium-Term Fiscal Framework (MTFF).
"However, there is a need to re-balance fiscal consolidation efforts and stimulate the domestic economy in light of various upside and downside risks such as persistently high inflation and interest rate environment; geopolitical tensions (such as the Russia-Ukraine war and Israel-Gaza conflict); slower-than-expected global economy recovery; progress of tax policy reforms in Congress; heightened climate change risks and other environmental vulnerabilities (such as El Niño and La Niña phenomena); and development gaps and opportunities (such as priority expenditure areas)," the DBCC said.
The updated MTFF targets to slash the yawning budget deficit to 3.7 percent by 2028, alongside a debt-to-gross domestic product (GDP) ratio below 60 percent that same year when President Marcos Jr. steps down from office, the DBCC noted.
The DBCC said public debt, whose share to GDP inched up to 61.3 percent as of end-September 2024, remained anchored to sustainability on the back of "favorable macroeconomic performance and adherence to fiscal consolidation commitments."
"Adherence to the fiscal consolidation plan as outlined in the MTFF will galvanize the national government's track record of fiscal prudence, positively influencing the market perception of moderation of risks surrounding the country’s debt and hence keeping financing costs at reasonable levels," the DBCC added.
While President Marcos Jr.'s economic managers had committed to not impose new nor higher taxes, the DBCC urged the national government to "employ greater fiscal consolidation by promoting more efficient tax administration and a proactive debt management strategy, all the while expanding the tax base through new revenue measures and implementing sound expenditure policies and reforms."
Earlier, World Bank economists watching the Philippines disclosed they were monitoring how increasing political tensions ahead of next year's midterm elections are affecting economic sentiment and the government's policy agenda, referring to the intensifying public spat between the camps of President Marcos Jr. and Vice President Sara Z. Duterte-Carpio, including her father, former president Rodrigo R. Duterte.
But thus far, the World Bank said last Dec. 4 that "while the political tension in the country has recently increased, no major influence on the economy is expected at this stage."
Midterm polls in the Philippines usually gauge public sentiment on the performance of the incumbent administration in the first half of its term, paving the way to political moves ahead of the next presidential election, which will next be held in May 2028 before President Marcos Jr.'s six-year mandate ends.