The national government breached its budget deficit program for 2024, and although it narrowed slightly from the 2023 level, analysts said it would require new borrowings to bridge the gap.
The Bureau of the Treasury (BTr) said in a statement released on Thursday the government incurred a budget shortfall of P1.506 trillion, wider by 1.48 percent than the programmed P1.484 trillion spending.
Year-on-year, the 2024 deficit narrowed by 0.38 percent from P1.512 trillion in 2023.
The BTr said the deficit exceeded the program target owing to the higher-than-expected expenditures.
“The slight variance versus the P1.484 trillion deficit program was due to a higher outturn in government spending, including those charged to unprogrammed appropriation, as well as defrayment of accounts payables,” the BTr said.
As a percentage of the country’s gross domestic product (GDP) last year, the deficit improved to 5.7 percent from 6.22percent in 2023, the BTr said.
Higher prices, election spending
Michael Ricafort, Rizal Commercial Banking Corp. chief economist, pointed to higher prices and election-related bloated government spending in 2024.
This could have been offset by the -0.75 central bank rate cut to a two-year low of 5.75 percent and the -1.00 Fed rate cut to 4.50 percent in 2024, “which partly reduced interest expense toward the end of 2024,” Ricafort said.
“On balance, continued budget deficits, albeit slightly narrower/better year-on-year and versus programmed, nevertheless, would still fundamentally require additional national government borrowings that increase its outstanding debt,” Ricafort said.
Michael Enriquez, president of Sun Life Investment Management and Trust Corp., agreed that the deficit could lead to higher government borrowings, “which may pressure long-term rates to move higher.”
Asked if the government should consider revenue-enhancing measures such as tax reforms, or expenditure adjustments, Enriquez said: “Yes, those measures can definitely help, but it may take a longer time to feel the effects, [longer] than borrowings.”
Full-yr disbursements
The BTr said full-year disbursements for the year reached P5.925 trillion, 2.97 percent above the revised 2024 program of P5.754 trillion.
It was also 11.04 percent higher than the comparable level in 2023 of P5.336 trillion.
“The strong disbursement performance was driven by infrastructure and other capital outlays of the Department of Public Works and Highways, maintenance and other operating expenses for various health and social protection programs and personnel services expenditures due to the implementation of the first tranche of salary adjustments of qualified civilian government employees,” the BTr said.
“Furthermore, additional expenditures from the unprogrammed appropriations, such as the Public Health Emergency Benefits and Allowances for health care and non-health care workers; Medical Assistance for Indigent and Financially Incapacitated Patients Program of the Department of Health; Assistance to Individuals in Crisis Situations Program of the Department of Social Welfare and Development; and Rice Farmers Financial Assistance program of the Department of Agriculture, significantly contributed to the robust disbursement performance in 2024,” the BTr said.
Of the full-year total spending, 87.12 percent or P5.162 trillion funded primary expenditure, or expenses net of interest payments, which exceeded the revised program and previous year’s outturn by 3.43 percent and 9.65 percent, respectively.
The BTr said expenditures in proportion to GDP went up to 22.41 percent, higher than the 21.94 percent registered in 2023 and the revised target of 21.72 percent.
Another analyst said increased government spending, particularly on infrastructure, social services and debt repayments, may have stimulated economic activity, especially if funds were directed toward job-generating programs. However, he added, if a significant portion was spent on debt servicing and non-productive expenses, the growth impact may be less pronounced.
John Paolo Rivera, PIDS senior research fellow, said higher spending contributes to demand-pull inflation, especially if expenditures were not matched by revenue growth, he pointed out. “The BSP may closely monitor fiscal expansion to prevent overheating in the economy. If government borrows heavily from domestic markets to finance the deficit, it could drive up interest rates and reduce available credit for enterprises and households,” he said.
Revenue also exceeds program
Meanwhile, the government’s revenue collections rose to P4.419 trillion, 3.49 percent higher than the P4.27 trillion revised full-year program.
It also posted a 15.56 percent increase from the previous year’s level of P3.824 trillion.
Collections generated by the Bureau of Internal Revenue (BIR) rose by 13.29 percent to P2.852 trillion in 2024 compared with P2.517 trillion in the previous year.
The agency’s total uptake also exceeded the P2.849 trillion adjusted full-year program by 0.09 percent, which the BTr said was driven by increased Value-Added Tax (VAT) collections.
“The substantial rise in VAT collections came from collecting 12 months’ worth of VAT in 2024 compared to just 10 months’ worth in 2023 due to the change in filing schedule from monthly to quarterly that started in January 2023,” the BTr said.
“This was followed by higher personal income tax collections, particularly from withholding on wages and withholding at source, driven mainly by higher government employee salaries and positive job market conditions,” it added.
Total Bureau of Customs (BOC) collections for the year reached P916.7 billion, 3.79 percent up from the 2023 level of P883.2 billion.
The BTr said the increase was brought about by the growth across duties, VAT and excise collections, a result of the bureau’s strengthened digitization, inspection and border protection efforts implemented during the year.
However, the outturn of BOC for the year fell short of the P939.7 billion revised full-year 2024 program by 2.45 percent, which the BTr said was due to the reduced tariff on rice and selected electric vehicles, as well as the extension of lower tariff on meat products.
Meanwhile, non-tax revenues surged to P618.3 billion, growing by 56.61 percent from 2023 level of P394.8 billion, and exceeding the revised full-year target of P449.6 billion by 37.53 percent.
“The better-than-expected outturn was due to strengthened efforts to generate windfall collections such as that from the Public-Private Partnership concession fee (amounting to P30 billion) and the P167.2 billion fund balance transfers from the Philippine Health Insurance Corp. and Philippine Deposit Insurance Corp.
Deducting the fund balance transfers, total non-tax collections of P451.1 billion still exceeded the adjusted full-year program by 0.33 percent,” the BTr said.
The P283.4 billion income collected and generated by the BTr for 2024 increased by 24.48 percent over the previous year’s P227.6 billion, propelled by higher dividend remittances, interest advances from government-owned and -controlled corporations, guarantee fees, and the national government’s share from the Philippine Amusement and Gaming Corp.’s profits, the bureau said.
Moreover, BTr income outperformed the P187 billion 2024 program by 51.52 percent, driven by the same aforementioned factors.
Total revenue from other offices, such as privatization proceeds, fees and
charges, grants, and fund balance transfers, doubled to P335 billion from P167.2 billion a year ago and exceeded the P262.6 billion revised program by 27.56 percent, which the BTr said was due to one-off remittances.
According to the bureau, revenue effort improved to 16.72 percent, compared with 15.73 percent in 2023 and higher than the target of 16.12 percent.
The revenue effort in 2024 was the highest in 27 years or since 1997.
The tax effort of 14.38 percent was up from last year’s 14.1 percent but lower versus the 14.42 percent pro
