Philippines budget deficit widens to 6% due to trade tensions

Fitch Solutions unit BMI forecasts that the Philippines' budget deficit will widen to 6% of economic output this year due to escalating trade tensions.

BMI's report highlights that fiscal consolidation efforts will be challenged by a more difficult external environment, necessitating fiscal support to offset global headwinds.

The government aims to reduce the deficit to 4.3% of GDP by 2028 but BMI warns that US trade protectionism poses a significant risk.

As of June, the national government's outstanding debt as a share of GDP reached 63.1%, the highest since 2005 and above the 60% threshold considered manageable for developing economies.

BMI estimates that increasing government spending by around 1 percentage point would be necessary to meet the 6% medium-term growth target, but this is deemed fiscally unfeasible given current debt levels.

To mitigate the impact of rising trade fragmentation and geopolitical tensions, policymakers are expected to adopt a balanced policy response including monetary easing and efforts to diversify trade partners.