THE Philippines remained on track for a gradual fiscal consolidation over the coming years on strong revenue growth despite increased fiscal spending, Fitch Solutions said on Friday.

In an emailed report to The Manila Times, the credit intelligence provider said it expects the country’s budget deficit to come in at 7.6 percent of gross domestic product (GDP) in 2022 and 6.0 percent in 2023 from 8.6 percent in 2021.

Fitch Solutions made the forecast after the Senate Economic Planning Office released its macroeconomic and fiscal assumptions in the proposed 2023 national budget on September 12.

“Our 2022 budget deficit forecast is in line with official projections whilst our 2023 budget deficit forecast is slightly below official projections of 6.1 percent due to a difference in growth assumptions,” the firm said. “Nevertheless, we still believe that the Philippines remains on track for gradual fiscal consolidation over the coming years due to strong revenue growth on the back of extensive tax reforms and robust economic growth, which will offset expansionary fiscal spending.”

The public debt-to-GDP ratio in the country will peak at 61.1 percent in 2023, before tapering from 2024 onwards.

Fitch Solutions sees a downside in its budget deficit forecast.

“First, the weakening global demand could affect the Philippines’ economy, in turn, weighing on revenue growth,” it said.

“Additionally, elevated inflation pressures could entail greater subsidies to help ease the cost of living,” it added.

President Ferdinand “Bongbong” Marcos Jr. has proposed a record 2023 budget of P5.27 trillion to Congress to help him achieve his goal of maintaining GDP growth from 6.5 to 8.0 percent throughout his term.

Fitch Solutions said the proposed spending is 4.9 percent higher than the 2022 budget and could reach 22.1 percent of GDP.

“We expect a few changes to be made in the approved 2023 budget. Thus far, the proposed budget has already passed Senate deliberations on September 29, and is now being presented in the plenary, at the time of writing,” the firm said.

The government’s debt as a share of GDP ballooned to 60.4 percent in 2021, compared with 39.6 percent before the Covid pandemic.

Marcos has said he intends to bring the budget deficit back to 3.0 percent of GDP by 2028 after it surged to a record 8.4 percent in 2021.

Fitch Solutions attributed the bigger fiscal deficit to a collapse in revenue coupled with expansionary spending as the government sought to mitigate the economic fallout from the pandemic.

“Accordingly, we expect the public debt-to-GDP ratio to peak at 61.1 percent in 2023, before declining from 2024 onwards,” it said.

It predicts that the Philippines’ disbursement growth to be in line with the government’s projections of 2.6 percent in 2023.

In the 2023 proposed budget bill, P1.2 trillion has been set aside for infrastructure disbursement relative to the P1.12 trillion spent in 2021.

The figures outlined in the budget bill echoed Marcos’ commitment to keep infrastructure spending from 5.0 percent to 6.0 percent of GDP, Fitch Solutions said.

Citing July data, the firm suggested that total revenue collections for the fiscal year 2022 to be around P2036 billion, or 61.6 percent of the government’s outturn as a whole.

This is better than last year’s figure, when revenue reached only 58.1 percent of the annual target.

Fitch Solutions also expect the country’s revenue growth to come in strongly at 10 percent year on year in 2023 on the back of extensive tax reforms and a robust economic backdrop.

“The array of tax reforms under the comprehensive tax reform program has helped boost revenue growth considerably since its inception, and we will likely see the continued impact of it moving forward,” it said.

It added that further reforms are likely, given the increased fiscal spending.