Angelo Taningco
Economist, Treasury Group

The Philippines’ fiscal balance reverted to a deficit position in September albeit at a modest size of P36.9 billion, which is less than the government’s deficit target for the month (P71.0 billion) and the P75.3 billion deficit posted twelve months earlier. Last August, the fiscal balance was at a P28.8 billion surplus.

The 51% year-on-year (yoy) narrowing in the fiscal deficit for September was brought about by a 21% yoy surge in government revenues and a 2% yoy slip in government expenditures.

On a quarterly basis, we calculated the fiscal deficit to have fallen 37% yoy to P58.6 billion in the third-quarter (Q3)-way below the government’s target of P201.4 billion for the given period-induced by a sharper increase in government revenues (15% yoy) compared to government expenditures (7% yoy) (Figure 1). As a share of projected Q3 gross domestic product (GDP), we estimated the Q3 fiscal deficit to be at 1.6%.

Figure 1: Fiscal Indicators
Q1 2016 – Q3 2017
(P billion)

 
On a cumulative basis, the January-September fiscal deficit stood at P213.1 billion, little changed compared to the deficit during the first nine months of last year. Government’s revenue growth was 9% yoy while its expenditure growth was 8% yoy over the first nine months of the year. The January-September government revenue performance is an improvement from its 2016 growth rate of 4% and we posit that this was on the back of better tax effort of the government: in fact, we computed the January-September tax effort to be at 14.6% of projected GDP, higher than 2016’s 13.7% (Figure 2). In contrast, the government expenditure growth in the first nine months of the year was not as strong compared to its 14% growth in 2016. As a share of projected GDP, we calculated the cumulative fiscal deficit to be at 1.9%.

Figure 2: Tax Effort
1986 – Jan-Sep 2017e
(% of GDP)

 
For the full-year 2017, we still do not expect the fiscal deficit to reach the government’s target of P482.1 billion or 3.0% of projected GDP. This is because despite our expectation that the government will be running another fiscal deficit for the fourth quarter (Q4), we think that its size will again be relatively modest amid sustained robustness in government revenue growth and persistently moderate government expenditure growth. Against this backdrop, we maintain our full-year fiscal deficit forecast of P319 billion, which we estimate to be equivalent to 2.0% of GDP.

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