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Philippines - The Manila Times - Balanced Budget Set for 2011 Print E-mail

Wednesday, February 18, 2009
Balanced Budget Set for 2011 
By Darwin G. Amojelar and Maricel E. Burgonio, Reporters
THE Philippines plans to balance its budget by 2011, the National Economic and Development Authority (NEDA) said.

“We have postponed balancing the budget. The 2008 deadline was moved to 2011. That will give us greater freedom to pump-prime the economy,” Socioeconomic Planning Secretary and NEDA Director General Ralph Recto said Monday night during an Economic Journalists Association of the Philippines affair.

In November, the country’s fiscal gap stood at P4.3 billion, a reversal from the P54.1-billion surplus posted in the same month in 2007. This brought the 11-month deficit to P66.7 billion.

“We do not want the spending to swell our national debt to worsen inflation or to crowd out private initiative. Hence, we seek to increase our national government deficit within prudent limits. The international benchmark for the deficit is 2 percent of GDP,” Recto said, referring to gross domestic product, a proxy for a country’s economic output.

Recto said the country’s economic managers plan to review their macroeconomic assumptions for this year given the global financial crisis.

“Some will be [adjusted] downward, like oil prices and inflation. Exports [will be adjusted] downward also,” he said.

Recto said a stagnant world economy cut foreign demand, hitting Philippine merchandise exports.

“In December, exports contracted by a startling 40 percent. As the current situation negatively affects consumer confidence, this weakens consumer demand, which was already dampened by rapid inflation and high oil prices last year. This translated to a slowdown in financial services, retail trading, transportation and communication,” he said.

He said the Philippine economy may grow between 3.7 percent and 4.7 percent this year, from 4.6 percent last year.

Deficit seen wider than forecast

Benjamin Diokno, a former Budget secretary, said growth, however, would come in lower at 3 percent, adding the government would incur a wider deficit this year.

In a forum, the University of the Philippines professor said the economy would likely take a hit from declining exports earnings, remittances and foreign direct investments.

“The country’s GDP is likely to slow further which would worsen the unemployment problem,” he said.

Diokno said the real problem is the country’s rising unemployment, which leads to lower consumption. “The government has to stimulate the economy by spending or taxing less,” he said.

“Consumer spending has lost momentum [due to slow remittance growth] and likely to continue in 2009 because of the rising unemployment. Fiscal space is limited to address unemployment and poverty,” the economist said.

“The government should focus on job creation and preservation,” he said, citing about 5,312 overseas Filipino workers who were displaced from their jobs due the global slowdown.

As the government’s tax effort remains low, Diokno said the 2009 budget deficit could range between P180 billion and P200 billion, more than 2 percent of GDP.

“[The] large deficit would add to [the] public sector debt,” he said.

The government expects its budget deficit to reach P102 billion this year from an estimated P75 billion last year. It is increasing its expenditures on infrastructure and social services to spur economic growth.

Constraints on fiscal stimulus

Diokno, a former Estrada Cabinet official, said there would be constraints in the implementation of the fiscal stimulus program, which amounts to P330 billion, due to the government’s limited fiscal capacity and poor governance.

Separately, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the level of public debt vis-à-vis GDP would be crucial to a credit rating upgrade.

“As long as the debt to GDP ratio continued to be worrisome, no credit upgrade is forthcoming,” he said.

As of November last year, the government had incurred a higher debt due to higher loan availments and the peso’s depreciation against the dollar.

The government’s debt increased by 12.9 percent to P4.236 trillion that month, compared with P3.751 trillion in November 2007, as it cranked up domestic borrowings for its fiscal stimulus tack.

Despite maintaining economic growth, the country’s credit rating remained two notches below investment grade.

(Source: The Manila Times, 2009)

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