Multinational bank HSBC expects the government to maintain fiscal prudence despite a projected increase in spending as local and global challenges persists.

“Despite widening the fiscal deficit assumption in the next five years, we do not think this change represents any indication of fiscal loosening or, in a more general sense, fiscal imprudence,” HSBC’s Global Research said last Friday.

The statement came after the Development Budget Coordination Committee (DBCC) adjusted this year’s fiscal deficit forecast to 5.4 percent of GDP from 5.1 percent previously.

The DBCC sees the fiscal deficit narrowing to 4.7 percent in 2026 to 3.7 percent in 2028, as the national government realizes more efficient revenue collection to better catch up with its expenditure.

HSBC said the wider fiscal deficit projection is influenced by the likely slower overall economic growth until 2025.

Moderate growth forecasts

“This is because the wider fiscal deficits are a result of lower assumptions for growth, and not higher expenditures. When GDP growth is lower, it means two things. One, the size of the tax base is smaller, leading to less government revenue,” HSBC said.

The DBCC last Friday downgraded its GDP growth forecast ranging from 6 to 7 percent for this year from 6.5 to 7.5 percent it estimated in December.

For 2025, it retained the latter higher GDP range but expects a smaller fiscal deficit of 5.2 percent.

HSBC economist Aris Dacanay said the government can continue to achieve a manageable fiscal deficit and revenue inflow through the implementation of several tax reforms.

These include the Tax Reform for Acceleration and Inclusion Act and Comprehensive Recovery and Tax Incentives for Enterprises Act, which Dacanay said contributed P250 billion to GDP.

HSBC said the government will continue to spend on infrastructure, but will do so in a more strategic way by focusing on projects with exponential benefits to the public.