DEBT watcher Fitch Ratings warned of potential fiscal shortfall amid efforts to bolster economic growth.

"We believe there is some risk of further fiscal slippage, given the government's continued focus on economic growth and the approach of mid-term elections in May 2025," Fitch Ratings said.

Fitch has affirmed the Philippines' investment grade rating at BBB, one notch above the minimum grade. It also maintained its stable outlook, noting strong medium-term growth prospects for the economy.

However, it said that the outlook was "constrained by low GDP (gross domestic product) per head, despite an upward trend."

Fitch Ratings cited Finance Secretary Ralph Recto's statement that no new taxes will be imposed this year and possibly not until the end of the Marcos Jr. administration in 2028, which, in turn, could slow down fiscal consolidation.

It noted that the government's updated medium-term fiscal program in March increased the targeted central government deficit. The new targets are 5.6 percent of GDP in 2024, up from 5.1 percent and 5.2 percent in 2025 from the previous 4.1 percent, aligning with its forecasts.

"The expected fiscal consolidation rests on improved tax collection and spending efficiencies," Fitch Ratings said.

The debt watcher expects the general government deficit to narrow to 3.8 percent of GDP by 2025, down from an estimated 5.0 percent in 2023 and 5.4 percent in 2022.

Similarly, the central government deficit is projected to decrease to 5.4 percent of GDP next year, from 6.2 percent in 2023 and 7.3 percent in 2022, stressing the "high deficits reflect the authorities' focus on fostering economic growth and development."

In a statement, Budget Secretary Amenah Pangandaman said the government would continue its consolidation plan to increase productivity and contribute to the country's economic growth.

"We will continue to pursue the priorities under our Agenda for Prosperity such as the Build, Better, More infrastructure program and accelerate our reform agenda to ensure that our government spending will yield higher productivity and contribute to the growth story of the country," she added.

Fitch Ratings said the Philippine economy would grow by 5.8 percent in 2024, below the 6.0 to 7.0 percent target of the government.

"Droughts associated with the El Niño phenomenon are affecting agricultural production and electricity and water supply across parts of the country, while heavy rainfall expected during La Niña later this year also poses risks to economic activity," it added.

The debt watcher also forecast real GDP growth to remain above 6.0 percent in the medium term, significantly higher than the "BBB" median of 3.0 percent.

This growth is supported by substantial investments in infrastructure and reforms aimed at boosting trade and investment, such as public-private partnerships (PPPs), Fitch Ratings said.