The Department of Finance said over the weekend it is drawing up a fiscal consolidation plan to cut government deficit and bring back economic growth near the 2016-2019 levels by 2024 or 2025, Finance Secretary Carlos Dominguez III said in an online briefing.
“The fiscal consolidation plan is an ongoing project which we have started about a month and a half ago. A first formal paper was issued by [Undersecretary] Gil [Beltran]… That is the first paper on our fiscal consolidation. We will come up with more details on that plan,” Dominguez told reporters.
“It is an evolving plan, which we will leave to our successors in the next administration. That is our duty and we will do it,” Dominguez said.
Fiscal consolidation refers to the policies undertaken by the government to reduce the budget deficit and accumulation of debt stock. It is not aimed at eliminating fiscal debt.
Beltran said based on DOF estimates, if all the measures and policies are passed, the government would be back to the usual deficit by 2025. “We can even do better if the economy rebounds quickly,” he said.
“The debt won’t be far off from 60 percent. It will go a little over that, but it will go back to about 60 percent and below that… It will go back to the usual…,” Beltran said.
Beltran said the economy was expected to surge upward, as soon as the lockdowns were eased. “Because the factors of production are there, they cannot move. Once you remove the blockades, the checkpoints and the restrictions, the economy will boom significantly,” he said.
Beltran said returning to the pre-pandemic economic growth level”•where GDP growth averages more than 6 percent”•could take place earlier than 2025, “if the next administration will be quick.”
“If they are as quick as this administration, then we can do it by 2024,” he said.
Beltran said the Philippine economy was more resilient compared to its peers in the region and by 2025, the country would be able to catch up and go back to the usual rate of growth and the pre-pandemic level of income.
Dominguez said the pandemic had not destroyed the factors of production, but “it has just put it in quarantine.” He said once restrictions were removed, the economy would grow at a very health pace.
Dominguez said the DOF was eyeing two options in the plan. One is to reduce expenditures just like what Indonesia did.
“Indonesia has already said that ‘we have to cut our budget to keep our deficit reasonable,’” he said. Dominguez said the other way is to increase government’s revenues.
Dominguez said the fiscal consolidation period would be difficult, but it would be favorable amid the prevailing low interest rates.
“So we have to see how the plan evolves. As I said, it depends on how long this pandemic will last. Fortunately, we are in a relatively good position,” Dominguez said.
Dominguez said the national government debt, as a proportion of gross domestic product, was expected to settle at a still manageable level of 58.7 percent this year.
He said the government was expected to go back to the road of fiscal consolidation once the virus was contained and public spending normalized to pre-COVID level.
Debt watcher Fitch Ratings said in a previous report the country’s general government deficit widened to 5.4 percent of GDP in 2020, up from 1.7 percent in 2019, on COVID relief spending and GDP contraction.
The general government deficit-to-GDP ratio is expected by the credit rating agency to grow to 8.8 percent in 2021 before decreasing moderately to 6.4 percent in 2022 and 5.6 percent in 2023.
It said the general government debt-to-GDP ratio would likely increase to 52.7 percent in 2021 and 54.5 percent in 2022, lower than the medians of 57 percent and 58.7 percent among “BBB” countries.