Fitch: PHL on track for gradual fiscal consolidation

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INTERNATIONAL think tank Fitch Solutions said on Wednesday the country was “on track” for gradual fiscal consolidation over the next few years, following the recent release of the National Budget Memorandum (NBM) earlier this month.

In a research analysis, Fitch Solutions said it now expects the country’s budget deficit as a percentage of gross domestic product (GDP) to reach 7.5% in 2022 and 6.2% in 2023, compared to 8.6% in 2021.

These have been revised down from the company’s previous guidance of 8.1% in 2022 and 6.7% in 2023.

“Our revision comes after the Department of Budget and Management released the National Budget Memorandum [NBM] June 9, detailing the budget aggregates that are approved by the Development Budget Coordination Committee [DBCC] on May 24,” Fitch Solutions said.

“Our deficit forecast for 2022 is slightly lower than the official projection of 7.6% of GDP due to a slower economic growth assumption, while our forecast for 2023 is slightly wider than the government’s projection of 6. .1% of GDP as we expect spending to exceed the official target. he added.

The company’s positive view on the country’s path to fiscal consolidation rests on its expectation of strong revenue growth alongside a recovering economy and positive tax reforms. Fitch Solutions said this will “likely offset” expansionary fiscal spending.

“As a result, we expect the public debt-to-GDP ratio to peak at 60.9% in 2023, which bodes well for fiscal stability,” the firm said.

In detail, Fitch Solutions expects revenue growth of around 10% in 2022 and 2023.

In the first quarter of 2022, government, tax and non-tax revenues increased by 23.7% as part of the economic reopening as more productive activities resume.

The company also said it expects disbursement growth to be in line with the government’s projection of 6% for 2022, but exceed the official target of 2.6% in 2023.

“We see limited risks to the government’s fiscal position in the near term. As public debt as a percentage of GDP soared to 59.2% in 2021 from 39.6% before the pandemic, fiscal consolidation plans following an increase in tax revenues and a rebound in economy are likely to bode well for fiscal sustainability,” the cabinet said. said.

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