Philippines To Reduce Debt, Create Jobs, And Lower Poverty Incidence

Finance Secretary Ralph G. Recto assured the House of Representatives that the government is on track to achieve its targets under the refined Medium-Term Fiscal Program, which aims to gradually reduce the deficit and debt, create more jobs, increase incomes, and reduce poverty.

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 the resources needed to meet its debt obligations without difficulty. I Photo: Department of Finance

"When 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 takes into account ongoing external trends that heavily influence the global economy, which is 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 the enormous budget of PHP5.77 trillion in 2024, the Department of Finance (DOF) scouted for more resources without inflicting new taxes on the people or bequeathing debts to be paid by future generations.

This is why the DOF raised the dividend rates of government-owned and -controlled corporations (GOCCs) to 75% from 50% in 2024 as one of 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 tax leakages, especially from e-commerce.

Total revenue collection from January to June 2024 grew by 15.6%, amounting to PHP2.15 trillion. Of this, tax collections increased by 10% to PHP1.84 trillion, while non-tax revenues grew by 63.3% to PHP314.2 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 PHP2.76 trillion. In the first quarter of 2024, the expenditure-to-GDP ratio stood at 19.7%.

The fiscal deficit has remained manageable at PHP613.9 billion, well 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 are also expected to 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 by 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 GDP. With higher government revenue collections and improved expenditure management, the 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 PHP2.57 trillion.

This includes the landmark USD2 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 toward 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 the resources needed to meet its debt obligations without difficulty.

"At first glance, it may seem that our debt, reaching trillions, is enormous. But, I repeat, we should not be alarmed by this. Because the debt of a country is not measured solely by its actual size," he said.