Despite The Impressive September Government Revenue Growth, 2017’s 9-Month Fiscal Deficit Runs Nose-to-Nose with 2016’s Performance

The National Government’s (NG) revenue growth for the month of September was impressive!

 

General Revenues (tax and non-tax) soared 20.57%. Tax revenues (BIR + Bureau of Customs) jumped 24.18% on the back of BIR’s 25.16% and Bureau of Customs’ 20.81% scintillating numbers for the month. 2017 was the best September performance since 2014 (upper pane).

In the 3Q, September’s activities pulled revenue collection growth (+14.54%) to the third highest in 9 years after 2013 (+19.29%) and 2014 (+15.03%).

Even with the magnificent 3Q lift, over the 9 months period (+9.4%), 2017 trailed the years of 2011 through 2015, which posted a median growth of 12.63%.

It is worth repeating that the revenue outperformance in the 3Q by 2013 and 2014 coincided with sizzling hot M3 growth of 30%+++.

 

And it is not surprising to see the same dynamics at work again.

The difference has been that in 2013-2014, M3 was powered solely by bank credit. Thus M3 lagged bank credit growth.

Today, M3 has been energized by BOTH Net claims on the central government (QE) and by banking lending. Hence, it would appear that NG revenues have risen synchronically with bank credit (upper pane) and with M3 (domestic liquidity)

As one would note, to spike revenues for the government, the BSP’s emergency or ICU measures have been used to boost NGDP. Or, the BSP used zero bound rates as means for inflation targeting.

Boosting NGDP not only signify a subsidy for the NG; it also projects a strong GDP for publicity purposes.

But the costs of these policies are:

1) economic growth has been frontloaded or has borrowed from the future,

2) resources have been misdirected to capital consumption activities

3) balance sheets have increasingly become leveraged and

4) the purchasing power of the citizenry shrinks from the continuing invisible transfers to the government and to bank borrowers 

So far that was the good news.

Though September expenditures contracted by a measly 1.78%, the enormous jump in revenues still wasn’t able to solve the deficit problem.  

2017’s deficit of Php 36.892 billion was the second largest in 10 years after last year’s Php 75.327 billion.

2017’s 9-month deficit of Php 213.066 billion has run nose-to-nose with 2016’s Php 213.703 billion with just a difference of Php 637 million!

2009 and 2010s deficit were more about the Great Recession’s spillover effects (mostly relatively weaker revenues than today), hence vastly differs from current conditions.

Understand here (again) that the government through the BSP has employed emergency measures to obtain revenue 20%+ growth by spiking NGDP, which as shown in 2013 and 2014, had been unsustainable.

What would happen if the rate of revenue growth can’t keep with the pace of rate of government spending growth??? Will government borrow to finance these??? Or will it keep monetizing NG’s debt to ensure the overabundance liquidity, and to create the façade of having less NG debt??? Or will it be a combination of both?

Present actions of the USD peso suggest that the NG and the BSP have opted for the inflationary (debt monetization) path.