The Philippines is projected to maintain fiscal and current account deficits through 2028, with economists warning that sustained government spending is necessary to keep the domestic private sector in surplus and avoid a financial crisis.
According to a recent research paper, the country's private sector is expected to briefly slip into deficit in the third quarter of 2026 before returning to surplus by the fourth quarter of 2027.
The paper notes that the return to surplus reflects the role of fiscal deficits in supplying net financial assets to the private sector, which is essential in the current context of uncertainty and a growth rate below potential.
The government's goal of reducing the fiscal deficit to 3% of gross domestic product (GDP) is considered a "meaningless target," as the size of the fiscal position will largely be determined by the private sector's desire to save.
The government continues to pursue fiscal consolidation, with its latest medium-term fiscal program targeting a deficit of 3.5% of GDP by 2030.
The paper argues that the government must spend to compensate for low private investment and consumption in order to keep the economy afloat, as government spending does not crowd out the private sector, but rather complements it.
Sustained government spending is necessary to help maintain the domestic private sector in surplus and avoid a financial crisis, according to the research paper.
The paper's findings suggest that the government's spending will be needed to support the economy through 2028, highlighting the importance of fiscal policy in maintaining economic stability.
