R. Dan J. Roces
Chief Economist, Treasury Group

Philippine budget deficit for full-year 2018 came in at Php 558.3 billion, or 3.2% of GDP, breaching the 3% target cap set for the year. This is also the first time in 8 years that government has breached the set deficit target.

Details:

• Revenues rose 15.2% YoY (Php 2.85t)
• Expenditures also rose 20.7% YoY (Php 3.41t, exceeding Php 3.37t target)
• Average monthly deficit was Php 46.5 bn
• Revenue effort improved to 16.4% of GDP, or 0.8% higher than 2017
• Tax effort went to 14.7% of GDP, or 0.5% higher than 2017

Deficit may in fact be a positive

For 2019, the government has widened its budget deficit target to 3.2% of GDP, affirming its promise of raising public expenditure further in a country wracked by perennial underspending/misspending especially in much needed infrastructure. Another way to see this is that if the fiscal deficit translates to better spending for much-needed infrastructure, then the deficit is actually a positive – as long as investments raises productivity. Based from the recent numbers, investment ratio has risen sharply coupled with a slightly higher tax ratio. Investments, in fact, have been going up since 2012 (see figure 1). The key is to realize spending in high-impact, sustainable projects.

Our view is that public spending is in the expansionary track for the year, and we’ll probably see a redoubling of efforts in public works to reap the much touted economic growth rewards from the infra spending program. Reinforcing this view was the recent request by key government economic managers to the Comelec asking for exemptions to major infrastructure projects from a 45-day public works ban prior to the midterm elections. If approved, this will minimize slowdown in economic growth that may have been stunted by the delayed passage of the 2019 national budget.

Figure 1

(Source: Bloomberg)

 

 

 

 

 

 

 

Disclosures Appendix
This material is confidential and intended for suitable counterparties. The data and information provided in this report accurately reflect the personal views of the specialists or were obtained from public sources believed to be reliable. No representation or warranty as to its accuracy or completeness, express or implied is hereby made, and the investor should not rely thereon without making any independent analysis or research on any topic therein. Any opinion or advice expressed herein may change without notice.

This report is not to be taken as an offer to sell or buy securities or any investment. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct or consequential damage from the use or reliance on any material hereof. Reproduction of this material, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation, its directors, officers or staff or any of its subsidiary or affiliates may have taken a short or long position in any investments or securities mentioned herein upon the presentation of this report and may buy or sell the investments or securities at any time in the open market or otherwise, either as broker, dealer, principal or agent. You hereby acknowledge that you have read and understood this Disclaimer and agree to be bound by the conditions therein.