Finance Secretary Ralph G. Recto has assured the House of Representatives that the government is on-track to achieving its targets under the refined Medium-Term Fiscal Program that gradually reduces deficit and debt, creates more jobs, increases incomes, and reduces poverty.
“[W]hen I took on the Finance Secretary hat, my first priority was to recalibrate our growth and fiscal targets to ensure that they are achievable and adaptable to external shocks. Our refined Medium-Term Fiscal Program reduces our deficit and debt gradually in a realistic manner; while creating more jobs, increasing our people’s incomes, and decreasing poverty in the process,” he said during the FY 2025 Budget Deliberations on August 5, 2024.
The program took into account ongoing external trends that heavily influence the global economy at present while still recovering from the pandemic, such as geopolitical tensions.
“And under this, we have ensured that every peso to be collected or borrowed will be stretched to deliver the biggest bang per buck for the Filipino people,” he added.
To fund this enormous budget of PHP 5.77 trillion in 2024, the Department of Finance (DOF) scouted for more resources without inflicting new taxes on the people at present or bequeathing debts to be paid by future generations.
This is why the DOF hiked the government-owned and -controlled corporations’ (GOCCs) dividend rates to 75% from 50% in 2024 as among the major sources of non-tax revenues.
The Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), on the other hand, have posted higher collection performances through digitalization, strict enforcement, and plugging of tax leakages, especially from e-commerce.
Total revenue collection from January to June 2024 grew by 15.6% amounting to PHP 2.15 trillion. Of which, tax collections increased by 10% to PHP 1.84 trillion, while non-tax grew by 63.3% to PHP 314.2 billion.
This performance has placed the Philippines second in Asia in terms of revenue effort with a revenue-to-GDP ratio of 15.3% for the first quarter of 2024.
Expenditures also grew by 14.6% in the same period, reaching PHP 2.76 trillion. In the first quarter of 2024, expenditure-to-GDP stood at 19.7%.
The fiscal deficit has remained very manageable at PHP 613.9 billion, way below the mid-year target. As a percentage of GDP, the deficit stood at 4.5% in the first quarter of the year.
Over the medium term, the government expects revenues to grow by an average of 10.3% annually. Revenues as a percentage of GDP will also increase from 16.1% in 2024 to 17.0% in 2028.
Tax collections are expected to rise by 11.8% annually, driven by projected double-digit collection growths of the BIR and BOC. This will outpace the roughly 8.7% average increase of nominal GDP every year from 2024 to 2028.
“This means that we are asking the BIR and BOC to work harder and boost efficiency at a faster pace,” Secretary Recto said.
By 2028, the tax effort will rise to 16.3% from 14.4% in 2024.
The Finance Chief shared that the projections took into account the additional revenues from the refined revenue reforms of the DOF, which were recalibrated to ensure that they do not place undue burdens on the taxpayers.
Disbursements, on the other hand, are expected to grow by an average of 7.4% and remain at about 21.1% of the GDP.
With higher government revenue collections and improved expenditure management, fiscal deficit is projected to drop from 5.6% in 2024 to 3.7% by 2028.
The government’s spending program will continue to prioritize education, infrastructure, food security, social protection, and national security to support the country’s growth momentum.
“Sisiguraduhin po natin na masinop ang ating pag-gastos at babalik sa taumbayan ang bawat sentimong nalikom,” Secretary Recto stressed.
Meanwhile, he assured the members of the House that the government is continuously managing the country’s debt according to the highest standards of fiscal discipline.
As of June, the gross financing stands at 61% of the full-year goal of PHP 2.57 trillion. This includes the landmark USD 2 billion global bond issuance last May, which is one of the government’s most affordable and cost-effective borrowing costs.
The country’s heavy bias on domestic financing has facilitated the continued redenomination of the national debt into local currency, now representing 68.3% of our total borrowings.
The DOF also strategically favors long-term obligations to reduce our reliance on short-term debt and minimize rollover risks. Currently, long-term debts constitute 79.8% of the country’s total portfolio.
Secretary Recto assured the public that there is no cause for concern regarding the Philippine government’s total outstanding debt because the size of the country’s economy is large enough to allow the government to generate without difficulty the resources needed to meet its debt obligations.
“Sa unang tingin, tila napakalaki ng ating utang na umaabot ng trilyon. Pero, uulitin ko, hindi po tayo dapat mabahala dito. Dahil hindi nasusukat ang utang ng isang bansa base sa pagtingin lang sa aktwal na laki nito,” he said.
The Finance Chief explained that as with private individuals, debt should be viewed relative to repayment capacity, which in the case of governments are measured by the size of their respective economies.
One global standard metric is looking at the ratio of a country’s nominal outstanding debt over its gross domestic product (GDP) or the value of goods and services produced locally in a given period.
The Philippines’ debt-to-GDP ratio has begun to decline from its post-pandemic peak of 60.9% in 2022 to 60.1% in 2023. The DOF targets to push this ratio even lower to below 60% over the medium term.
He further explained that while the country’s total nominal debt continues to rise, it merely reflects the conscious decision to run fiscal deficits to be able to accommodate growth-enhancing investments in infrastructure modernization, human capital development, and social protection while paying off the pandemic borrowings it inherited from the past administration.
In 2019, when the country achieved its lowest debt-to-GDP ratio, the total nominal debt was only PHP 7.7 trillion. But this figure nearly doubled to around PHP 13.4 trillion right after the pandemic, just as the Marcos, Jr. administration took over.
“It is also important to note that while we are doing this, the cost of the government’s borrowings has climbed post-pandemic as central banks have raised their interest rates to combat inflation driven by geopolitical tensions,” he said.
Hence, the present administration is now refinancing the necessary large borrowings contracted during the low-interest rate period in 2020 to 2022 with new debts that bear higher interest rates.
“But while interest rates have gone up, the cost of our borrowings remains manageable and much lower than our GDP growth,” he stressed.
The country’s effective interest rate for next year is only 5.3%, which is very cheap considering that the average term of our debt is 7.5 years.
Removing inflation, the country’s real interest rate is only 2.3%, far lower than the expected real GDP growth of 6.5% —which means the country is on track to outgrow its debt.
“As central banks begin lowering policy rates—hopefully starting in the third quarter of 2024—we can expect growth of interest payments to moderate, as long as we continue to manage our debt responsibly,” Secretary Recto added.
The Bureau of the Treasury (BTr) continues to employ prudent debt management strategies to ensure that borrowings remain manageable and sustainable.
Secretary Recto cited that strict adherence to fiscal discipline and proactive debt management are among the major reasons why the Philippines has maintained its high credit rating status.
Having a high credit rating indicates that the country can pay its debts sustainably and can have more access to cheaper and more cost-effective financing.
“We are determined to stick to our Medium-Term Fiscal Program by exercising the highest level of fiscal prudence. Because doing so will also allow us to achieve a credit rating upgrade under this administration,” Secretary Recto said.
He also assured the House that the government is making good, steady progress on its economic goals, as evidenced by its strong growth, decelarating inflation, vibrant labor market and growing middle class, achievement of all time high gross national income per capita in 2023, and significant reduction of poverty incidence last year.
In closing, the Finance Chief called on the Congress’ support the 2025 proposed national budget of PHP 6.35 trillion to help the government achieve its agenda for prosperity.
“So, as we begin the deliberations for the NEP [National expenditure Program], let us all together carefully choose projects in the budget that deliver the biggest growth and economic benefits for our people,” he said.
