There seems to be no stop to the increase of the country’s cash supply and equivalents, according to latest data from the Bangko Sentral ng Pilipinas (BSP).
However, the government is seen continuining struggling with a budget deficit, according to a unit of a credit rater.
As of October this year, the BSP said that domestic liquidity (M3) grew by 5.5 percent year-on-year to about ₱17.7 trillion in October, the same pace as in the previous month (as revised). On a month-on-month seasonally-adjusted basis, M3 marginally increased by about 0.5 percent.
Domestic liquidity refers to cash, and other assets that can be converted to cash such as listed equities.
Not surprisingly, the increased domestic money supply saw increased lending by financial institutions to consumers.
The BSP said consumer loans to residents grew by 23.6 percent in October from 23.4 percent in September, driven mainly by increased credit card and motor vehicle loans.
STRUGGLING WITH CASH
And while the Philippines in general is expected to still have a lots of cash next year, the same cannot be said of its government.
This, as the national government still continues to incur budget deficits, necessitating the borrowing of funds from local and international sources.
As of the latest, Bureau of Treasury (BTr) said that the budget deficit during the first nine months of the current year, or from January to September, amounted to P970 billion, which is 1.35-percent lesser compared to the P983.5 billion logged in the same period last year.
The government incurs a budget deficit when spending exceeds its revenues.
The actual budget deficit for the period was lower than the P1.1-trillion target, said BTr. “The total deficit for the first three quarters was 9.08 percent short of the P1.1 trillion program for the nine-month period and is at 65.36 percent of the P1.5 trillion revised full-year program.”
Admittedly, the Philippines’ fiscal recovery has already fallen behind regional counterparts and the latest budget certainly does not help this cause.
GRAPPLING WITH DEFICIT
Nonetheless, BMI Research, a unit of the Fitch Group, warned in October that the Marcos administration will have to grapple with a growing budget deficit.
The government has set this year’s budget deficit ceiling to equivalent of 5.6 percent of total economic output, and lower to 5.3 percent next year. The ultimate aim is to lower it to 3.7 percent by 2028.
“Admittedly, the Philippines’ fiscal recovery has already fallen behind regional counterparts and the latest budget certainly does not help this cause,” BMI said, adding the scenario will reverse the fiscal consolidation gains of the government.
When it comes to overall debt, BMI said the Marcos administration will likely fail to achieve its goal of having a debt to gross domestic product (GDP) ratio of 55.9 percent by 2028. “We believe this target is unlikely to be met.”
DRAMATIC FISCAL ADJUSTMENT
The country’s debt-to-GDP ratio stood at 61.3 percent as of November, which is above the 60-percent threshold for developing nations. The highest debt-to-GDP ratio of the Philippines was logged in September 2004 or at 72.3 percent while the lowest was recorded in December 2019 at 39.6 percent.
The BTr itself said in its recently released 2023 annual report that a return to the pre-pandemic debt-to-GDP ratio of 39.6 percent is “technically and politically infeasible.”
It also claimed that this would require a more dramatic fiscal adjustment where the NG must run consistent budgetary surpluses, which would deprive the country of the needed public investments to take advantage of its demographic trends and structural reforms to improve its business climate.
THE GOOD NEWS …
The good news is the government is less dependent on foreign borrowings, or with its overall debt comprising 75 percent owed to domestic sources. Its total debt stock stood at P16 trillion as of end-October.
And with the country’s liquidity remaining robust, this means that the government can easily source borrowings locally.
In fact, the latest Treasury bills auction by the BTr was oversubcribed by almost four times, and easily fetched P15 billion, indicating that money seems to be overflowing in the Philippines in general.
