The Department of Finance (DOF) expects the national government’s deficit to return to its pre-pandemic level by 2025 or even a year earlier, as the agency prepares a fiscal consolidation plan.
Carlos Dominguez, DOF secretary, said the fiscal consolidation plan is an ongoing project which the DOF has started working on about a month and a half ago.
“We are preparing a fiscal consolidation plan, but it’s not going to come out in one blow.
It’s an evolving plan, which we will leave to our successors in the next administration. That is our duty and we will do it,” he said.
“The first formal paper was issued by (DOF undersecretary) Gil (Beltran) last week. We will come up as it becomes clearer to us maybe once a month, we will come up with more and more detail on that fiscal consolidation plan,” he added.
Dominguez said while there is still no final plan, he “suspects that there will be two options.”
“One is perhaps reduce our expenditures as Indonesia did. That’s one way. The other way is to increase our revenues. But I’m telling you it’s going to be very difficult, this fiscal consolidation period is going to be rather difficult. But the good thing that’s going for us is that interest rates are low. They haven’t risen very much,” Dominguez said.
“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, not an absolutely good position, a relatively good position,” he added.
In 2019, the deficit-to-gross domestic product (GDP) ratio was at 3.4 percent, while the debt-to-GDP level was at 39.6 percent.
However, when the pandemic hit the country last year, forcing the government to significantly spend even as revenue collections were affected by lockdown measures, the deficit ballooned to 7.5 percent of GDP.
The debt-to-GDP also rose to 54.5 percent in 2020, amid higher funding requirements to address the challenges brought by the coronavirus pandemic.
“So far, our estimates show that if we can get all these measures passed… by 2025, we will be back to our usual (pre-pandemic) deficit. We can even do better if the economy rebounds quickly. It could be earlier if the next administration will be quick, if they’re as quick as this administration, then we can even do it in 2024,” Beltran said in the same briefing, referring to the remaining measures under the comprehensive tax reform program.
“We expect the economy to surge upward, as soon as the lockdowns are taken out.
Because the factors of production are there, it’s just that they cannot move. Once you remove the blockades, the checkpoints and the restrictions, the economy will boom significantly,” he added.
Beltran said in terms of recovery, the aim is to be at par with neighboring economies.
“Actually, they declined a little bit better than us. But our economy is more resilient and will grow faster than them. So eventually, we will catch up by 2025, we expect that we will go back to the usual rate of growth and the pre-pandemic levels of income,” Beltran said.
“May I just add. We expect to be back to the 2016 to 2019 trend where we are not just at par, we were actually leading, we were among the frontrunners in our peers. And as we’ve emphasized all the time, this pandemic has not destroyed the factors of production, it has just put it in quarantine. So once that is released, we will grow a very, very healthy pace,” Dominguez said.
