Fiscal Report Card: Seasonal August Surplus; The BSP’s Emergency Measures Have Been Losing Their Traction; 85% Debt to GDP!

The Philippine government’s Bureau of Treasury released its fiscal balance (national cash operations) report the other week and debt report last week.

 

The good news was that the NG’s August report card posted a Php 28.8 billion surplus.

But such surplus had likely been influenced by seasonal factors. With the exception of 2009, August was a month of surpluses since 2008.

Although the surplus of this year was the third largest, it did little to diminish the eight-month deficit, which at Php 176.2 billion represented the third largest since 2008.

 

The next propitious news was that government revenues had been up 9.94% which comprised BIR’s 9.01%, Bureau of Custom’s 15.74% and non-tax revenues at 2.91%. For two consecutive months, the average growth rate had been (in the same pecking order), 12.13%, 13.29%, 14.36% and +.99%, respectively.

Tax revenues in the first two months of the 3Q performed generally better compared to the 2Q. However, seen in the context from eight months (January to August), has substantially underperformed the previous years. (upper window)

To consider, present subsidies provided by the BSP’s emergency measures through historic low rates and through unprecedented QE have hardly transformed into BETTER tax revenues. Moreover, the enormous fiscal deficits appear to have delivered LESS for the government than expected.

The August breakout of M3 (15.4%) and of total banking loans (+19.75%) from their previous highs have only produced a downshift in monthly growth rate in revenues from July’s 14.31% to August 9.94%. The BSP’s emergency measures have been losing their traction.

As pointed out earlier, the product of the BSP’s emergency measures has been to dramatically increase systemic leverage as indications of overcapacity mounts.

 

And it has not just been private sector debt. Since the constant use of QE would expose the charade, the NG has complimented the BSP by been revving up its debt engine. 

While domestic debt grew by Php 5.345 billion, the falling peso pushed up foreign debt by 8.76% to Php 41.035 billion in August.

But there will be more debt-financed public spending ahead. The NG was recently provided by China-led Asian Infrastructure Investment Bank (AIIB) and by the World Bank loans worth $207.6-million each for a $500 million flood management project.  Such grand flood project means additional “US dollar shorts”.

The banking system’s total debt portfolio (production + consumer) was at Php 6.374 trillion as of August. The national government’s outstanding debt (local and foreign) was at 6.432 trillion. Add the two figures we get Php 12.806 trillion. Yet that number excludes debt from the corporate bond market, from FDIs, from shadow banking in various forms or from other unreported sources. Nominal GDP during the 1H was Php 7.522 trillion. Annualized, we get something like Php 15.044 trillion NGDP for 2017.

As of August, debt to GDP stood at approximately at 85%!

Now that would be a WOW!