Budget shortfall narrows in October as canceled projects pull down state spending

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Metro Manila (CNN Philippines, November 25) — Government spending maintained its slump in October compared to a year ago as stimulus measures failed to offset the impact of cancelled projects during the COVID-19 crisis, the Bureau of the Treasury said.

In a report released Wednesday, the Treasury said state spending dropped 6.8% to ₱289.6 billion, ₱21.2 billion lower than what was spent in October 2019. While interest payments were up 6.5%, actual expenditures dropped 7.8% to just ₱267.5 billion.

"This is largely attributed to the base effect of the one-off pension differential releases for the military and uniformed personnel in October last year, as well as the expected lower capital outlays during the year because of the pandemic," the bureau said.

The government had to cancel some projects and items funded under the ₱4.1 trillion national budget this year to accommodate emergency relief and stimulus measures due to the COVID-19 crisis. However, even that failed to lift monthly spending.

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However, the 10-month spending data showed better signs, rising 12.8% to ₱3.31 trillion versus ₱2.94 trillion during the same period last year.

The Bayanihan to Heal as One Act and its replacement, the Bayanihan to Recover as One Act, allowed President Rodrigo Duterte to shelve or end projects under the 2020 budget to free up funding for COVID-19 response.

The government has spent ₱486 billion on coronavirus response as of November 20, data from the Budget Department showed.

On the other hand, revenues remain depressed as limited economic activity stifled tax collections. Total revenues reached ₱228.2 billion in October, down 12.8% from a year ago.

Existing quarantine rules limit what people can do in public as a preventive measure for further infections. The government has since been encouraging people to head out to shop, dine, and travel with caution.

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By agency, the Bureau of Internal Revenue saw a 14.6% drop in taxes raised to amount ₱152.1 billion, followed by a 12.3% decline from the Bureau of Customs to ₱50.6 billion. Other state agencies contributed ₱1.1 billion, down 38% year-on-year.

Even agency dividends were down 35% to ₱6.9 billion. The Treasury said the decline was due to lower revenue shares generated from the Philippine Amusement and Gaming Corp. and the Manila International Airport Authority – industries both severely hit by the pandemic.

The year-to-date revenue haul remained 8.4% lower at ₱2.37 trillion against the ₱2.59 trillion collected as of October 2019.

As a result, the October deficit rose by a fourth to ₱61.4 billion. The running shortfall was wider at ₱940.6 billion at end-October – nearly triple the ₱348.3-billion funding gap during the comparable period in 2019.

Authorities have conceded to a ballooning deficit this year as the economy plunges into recession. The deficit ceiling is set at ₱1.82 trillion – or nearly a tenth of domestic output – for the full year. The gap is at 7.54% of GDP as of the third quarter.

However, the fiscal gap settled at just half of that ceiling with only two months left to catch up. This points to weak state spending and even weaker economic activity.

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The government has resorted to more loans from local and foreign sources to support COVID-19 programs as well as other projects in the pipeline for the year, since it has to spend more than what it can collect as taxes to keep the country going.

RCBC economist Michael Ricafort said in market commentary that the slower spending reflects the "relatively slower deployment" of the ₱140 billion stimulus plan under Bayanihan 2, a measure touted to help ailing sectors and small businesses to get back on their feet after earlier lockdowns.

"As a result, slower trend in government spending could lead to slower recovery in GDP data, as may have been seen recently," Ricafort said, referring to contractions seen in previous quarters.

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He called on agencies to speed up fund releases under Bayanihan 2 to "achieve the objective of greater response to COVID-19 especially for faster economic recovery" and to boost support to the healthcare sector, as more than a thousand new cases are confirmed every day.

"The schedule is already tight and expediency is key right now to have a positive impact on economic recovery program," Ricafort said.

The Philippine economy ended its growth streak and has shrunk by 10% as of end-September. Economic managers claim that the worst is over locally, but a rebound to growth may not be seen until next year.

Another economist said debates on the size of the stimulus package are rendered moot with the slow rollout of the modest ₱140-billion bill.

"It is ironic that many economic observers push for more fiscal stimulus and yet here we are, less than two months left of 2020, apparently struggling and having difficulty spending what has been provided by the Bayanihan law," UnionBank chief economist Ruben Carlo Asuncion told CNN Philippines.

"In any crisis, timing is very important. If the particular recovery program encounters implementation constraints and requires more time than initially required, consequently, the crisis can be prolonged," he added.

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