PHL urged to adjust fiscal stance amid downgrade risk

ECONOMISTS said the government should adjust its fiscal stance amid an oil price shock after Fitch Ratings revised its outlook for the Philippines to “negative,” with differing views on how to balance fiscal discipline and increased spending.

“Given the overwhelming need to respond to this oil crisis, we have to strike the right balance of providing urgent relief to Filipino families without sacrificing our ability to spend on growth-enhancing programs like education and health,” former Finance Secretary Margarito “Gary” B. Teves said in a Viber message on Wednesday.

“The government has to convincingly break away from its narrow-minded stance of ‘fiscal consolidation’ and pursue countercyclical spending supported by progressive revenue measures,” Jose Enrique “Sonny” A. Africa, executive director of IBON Foundation, said in a separate Viber message.

On Monday, Fitch affirmed the country’s long-term foreign-currency issuer default rating at “BBB” but downgraded its outlook from “stable,” citing disruptions to public investment and exposure to the global energy shock.

“The outlook revision reflects rising risks to the Philippines’ strong medium-term growth prospects from recent disruptions to public investment, exacerbated in the near term by elevated exposure to the ongoing global energy shock,” Fitch said in a commentary.

“These challenges could narrow the country’s GDP (gross domestic product) growth outperformance relative to peers, amid higher post-pandemic government debt and a gradual and sustained deterioration in its external finance position,” it added.

The country is under a one-year state of national energy emergency amid soaring oil prices and dwindling fuel reserves.

Mr. Teves said the Marcos administration needs to improve governance mechanisms through reforms in the budget process.

“These include empowering regional development councils to ensure alignment between regional and national development plans,” he said. 

He added that the government should increase civil society participation “not only in the drafting of the President’s National Expenditure Program but also in exercising oversight in budget implementation.”

The Philippines faced a corruption scandal last year that linked government officials, lawmakers, and contractors to anomalous flood control projects, which slowed public spending and dampened investor and consumer confidence.

Mr. Teves said funds such as the contingent fund, quick response fund, and confidential funds under the 2026 General Appropriations Act could be rechanneled for oil crisis mitigation.

The government has started rolling out subsidies to sectors most affected by higher fuel prices, including transport and agriculture, as well as a P10-per-liter fuel discount.

Mr. Africa warned that a potential downgrade could reinforce what he described as the government’s tendency toward fiscal consolidation.

“The quality and equity of the government’s fiscal stance have to be improved, not shrunk to appease credit ratings agencies,” he said.

Mr. Africa said focusing too narrowly on deficit and debt targets could worsen the impact of rising prices on households.

“If the government is locked into trying to mechanically hit deficit or debt targets just to satisfy credit ratings agencies, it will only worsen the livelihood and purchasing power crises of millions of Filipino families,” he said.

“On the contrary, countercyclically expanding public spending for social relief and energy investments will not just be stabilizing but also enhance growth,” he added.

He said such spending would anchor growth in domestic demand and help prevent a downgrade from triggering austerity.

Mr. Africa also called for expanded subsidies for transport workers, farmers, fisherfolk, and low-income households to cushion the oil shock’s second-round effects.

“Unfortunately, the government is not undertaking any new and additional spending commensurate with the oil shocks and is just repackaging various aid programs for the year that would have been spent anyway,” he said.

He added that the government should improve revenue collection through more progressive taxation.

“Instead of relying on regressive consumption taxes like value-added taxes and excise taxes, there can and should be stronger taxation of the highest-income groups with a billionaire wealth tax, windfall profits tax, and luxury taxes — this can generate some P500-600 billion or more,” he said.

“The revenue-losing income tax cuts on rich families and large corporations can also be reversed to recover some P200-300 billion in foregone revenues,” he added. — Justine Irish D. Tabile