Philippines Key Fiscal Indicators Improve in Q1

The country’s key fiscal indicators improved in the first three months of the year as the rise in state tax collections continued to outpace growth, while the national government’s budget gap and outstanding debt remained very well managed.

The proportion of public debt to the country’s gross domestic product (GDP) as of March this year reached 41.87 percent, an improvement from the 43.56 percent registered a year ago, according to Finance Undersecretary Gil Beltran in his Economic Bulletin submitted to Finance Secretary Carlos Dominguez III.

Also, the latest debt-to-GDP ratio was better than the 42.06 percent recorded at end-December last year, said Beltran, who is also the chief economist of the Department of Finance (DOF).

The government’s domestic debt was equivalent to 26.84 percent of the economy, down from 28.36 percent in the previous year and 29.87 percent as of December 2016.

Offshore debt-to-GDP ratio also declined slightly during the period to 15.03 percent from 15.19 percent at end-March last year, but it was higher compared to end-December’s 12.18 percent.

Interest payments (2.74 percent) as a ratio of GDP, expenditures (15.93 percent) and revenues (18.41 percent) all declined by 0.25 percent point, 1.42 percentage points and 3.01 percentage points, respectively.

“Fiscal reforms including debt management reforms led to the continuing drop in the debt-GDP ratio,” said Beltran in his report to Dominguez.

Along with debt, the national government’s budget deficit-to-GDP settled at 2.32 percent, within the Duterte administration’s 3.0 percent ceiling the year and lower than the previous year’s 3.44 percent.

Meanwhile, the government’s tax effort jumped in the first three months of the year, owing to heightened collection efficiency of the country’s two main tax agencies. The tax effort, which is the proportion of taxes and duties to the GDP, settled at 13.41 percent as of end-March, up from the 12.99 percent reported in the same period last year.

The Duterte administration is determined to further improve the government’s tax effort—a closely watched indicator of a country’s credit worthiness—as it hopes to regain the pre-Asian crisis level of at least 15 percent.

“Tax effort rose 0.42 percentage point in the first quarter… due to rising tax collection efficiency,” Beltran said. At end-March 2017, the Bureau of Internal Revenue’s (BIR) tax effort improved to 10.36 percent from 10.09 percent last year, while the Bureau of Customs’ (BOC) efficiency ratio stood at 2.91 percent, up from 2.76 percent.

Tax effort of other revenue generating offices, meanwhile, was steady at 0.14 percent. Revenue effort also rose by 0.26 percentage point in the first-quarter to 14.89 percent from P14.63 percent in the same period last year.

Earlier, the Bureau of the Treasury reported that government’s total tax revenues in the first quarter of the year increased by 12 percent to P476.57 billion from P425.33 billion in the same period last year. Of that amount, the BIR collected P370.4 billion, an increase of 12 percent from P330.17 billion a year ago, while the BOC generated P104.13 billion in revenues, also higher by 15 percent than the P90.5 billion registered a year before.

The Philippines has been one of the fastest growing economies in Asia, posting GDP growth of 6.4 percent in the first quarter. The DOF is optimistic that the Philippines remains on track to meet its full-year growth target of 6.5 percent to 7.5 percent.

Finance Secretary Carlos Dominguez III has said “GDP expansion in the year’s first three months illustrates that growth remains steady and could gain momentum for the rest of the year, partly as a result of this Administration’s ‘Dutertenomics’ strategy to stimulate economic activity and achieve financial inclusion for all Filipinos in the long haul via an aggressive expenditure program on infrastructure, human capital formation and social protection.”

“We hope our legislators could help Malacañang sustain the growth momentum this year and onwards by acting soon enough on the first package of the CTRP (Comprehensive Tax Reform Program) that is now pending in the Congress, as it will help guarantee a steady revenue stream for the Duterte administration’s high—and inclusive—growth agenda,” Dominguez said.

Dominguez added that, “Solid macroeconomic fundamentals plus strong domestic consumption and investment sentiment have enabled, and will continue to enable, our country to sustain its pace as one of the world’s fastest-growing economies on the Duterte watch despite the ever-changing global market conditions.”

Beltran, meanwhile, said that “strong fiscal fundamentals will continue to sustain robust economic growth and stable inflation.”

“In the medium-term, infrastructure outlays exceeding 5.0 percent of GDP will push GDP growth to its optimum level of 7.0 percent to 8.0 percent as the economy gains more competitiveness,” Beltran added. (DOF)