Fitch sees slower Philippines fiscal consolidation
The Philippines may take a slower fiscal consolidation path as sluggish economic growth complicates the country’s ability to trim its budget deficit, according to Fitch Ratings.
Manila, Philippines — Fitch Ratings anticipates a more gradual fiscal consolidation for the Philippines due to sluggish economic growth, as outlined in their recent report. While the upward revisions to deficit figures are minor, the country's ability to reduce deficits will depend heavily on a rebound in growth and investment from their current subdued levels, the agency stated.
The Philippines' proposed 2027 budget signals "modestly slower fiscal consolidation" as weaker growth complicates the government's efforts to trim the budget deficit. The economy expanded by just 2.3% in the second quarter, marking the weakest growth in five years, as investment slowed due to an oil price shock that reduced private spending and limited public infrastructure disbursements following a flood control graft scandal.
The government has adjusted its deficit-to-GDP target for 2026 to 5.4% from the originally projected 5.3%, and for 2027, it is now 5.1%, a slower pace of consolidation than the previous 4.8% forecast. Fitch noted that the government's deficit target for 2030 has been widened to 3.5% of GDP, a significant change from the previous 3.1% target.
The decrease in revenue expectations has resulted in a significant adjustment in fiscal plans, with projected government revenue averaging around 15.5% of GDP over the medium term, below the earlier 16.5% average. In an effort to compensate, the Philippines has reduced its infrastructure disbursement plans to approximately four percent of GDP over the medium term, a decrease of about one percentage point from the previous framework.
While weaker public infrastructure spending could potentially hinder medium-term growth, the impact remains uncertain. Fitch acknowledges that governance reforms may enhance spending efficiency and potentially reignite economic growth through infrastructure spending, even at lower levels. The Marcos administration's plan to encourage public-private partnerships and local government units to drive infrastructure investment may help offset the reduced central government disbursements.
Fitch predicts that general government debt to GDP will rise slightly in the near term before stabilizing over the medium term, but the outcome will largely depend on growth performance, investment recovery, and the effectiveness of sustaining infrastructure investment.
Written by urgent.news from Philippine Star Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
