RP economy expected to grow despite scaling up of budget gap
MANILA – The decision scaling up the expected budget deficit this year to 3.6 percent of local output or the gross domestic product instead of only 3.2 percent of gross domestic product as forecast earlier should not unduly upset the growth path the government has envisioned for the country.
The jump from budgetary shortfall of some P300 billion to P325 billion should neither unduly strain public finance as some fear, nor should it cause domestic interest rates to spike upward or make the peso lose value, the Bangko Sentral ng Pilipinas said, in a report of the Philippine News Agency.
“Even if the deficit has been increased, its relative size to GDP remains manageable at below four percent. At the same time, its impact on public liability is believed to be modest while the impact on economic growth is excitingly very promising,” Deputy BSP governor Diwa C. Guinigundo said in an email to financial reporters.
Guinigundo represented the BSP at last Friday’s meeting of the inter-agency Development and Budget Coordination Committee (DBCC), which re-calibrated this year’s expected budget deficit to reflect higher social spending in areas adjudged truly critical while plugging the many avenues for tax leakages at the same time.
Because government acknowledged having to borrow more from local sources to help plug the deficit in the early stages of wide-ranging reforms, some fear this would push domestic interest rates higher and upset the stability of the peso, which has gained value against the US dollar in recent months.
“Given such a structure of public finance, we do not expect this to upset the relative stability of both interest rates, which are at historical lows, and foreign exchange rate which remains broadly competitive.If this new modality catches the imagination and support of the markets and the investors, we might in fact experience additional foreign exchange inflows,” Guinigundo said.
Recent public finance numbers that Secretary Purisima inherited from former Finance Secretary Margarito Teves have been unsettling, with the actual five-month deficit of P162.1 billion already past the six-month goal of only P145.2 billion.
That by itself forced the new economic team to recast the revenue goals of the main collection agencies to reflect a program that stressed stronger collections early rather late in the fiscal year.
“The thrust of the national government actually is more than the calculus of revenues and expenditures. It also intends to leverage on public-private partnership. This means that we can expect higher economic growth even with relatively modest public spending because the private sector will be summoned to provide additional driver of economic growth without so much fiscal drag.
“This can be exemplified by such public work projects as expressways in which private funds are leveraged to put up such infrastructures without much cost to the public because the private sector can take advantage of the positive externalities of such public work projects. This is a potent source of growth that can bring the Philippine economy to a higher growth trajectory and in the process make a significant dent on poverty,” Guinigundo said.
Such growth, in turn, “is both necessary and desirable.”
“We need to grow much more than what we have traditionally achieved because we have a lot of catching up to do. We have a lot of impoverished and unempowered people who need public support in terms of education, health services, etc. We have a huge need for critical infrastructure including power and facilities. One cannot simply talk his way to great economic achievements without spending and spending wisely,” Guinigundo said.
He also said some good things could possibly come out of the various fiscal measures the government plans to implement, both immediately and over the medium term.
“I would expect the Philippines could in fact win a credit upgrade. A very promising real sector performance with stable inflation, healthy external liquidity and sound banking system with funding from both private and government maintaining a medium-term fiscal consolidation (program) with a medium-term deficit-to-GDP ratio of two percent within a framework of good governance -these are the essential ingredients of great market confidence and eventual credit rating upgrade. We should expect more investments to come in once we win such an upgrade,” he said.
