Risks seen from lower deficit cap
‘Tough advice’ from IMF mission to be reviewed by economic managers
Economic managers will consider lowering the deficit cap to contain inflation but warn that this would put the “Build Build Build” program at risk.
The International Monetary Fund (IMF) on Wednesday recommended that the fiscal deficit be kept “at around 2.4 percent of GDP (gross domestic product) to support efforts to contain inflationary pressures,” along with other measures, to prop up growth and macroeconomic stability.
At the moment, the deficit program has been set at P523.682 billion or 3 percent of GDP for 2018, P624.370 billion or 3.2 percent for 2019, and 3 percent for 2020-2022.
In a joint statement on Thursday, economic managers noted that the medium-term deficit cap took into account the “Build Build Build” program, meant to address infrastructure gaps that the IMF had pushed the country to address.
“Reducing the budget deficit program to 2.4 percent of GDP is feasible,” Budget Secretary Benjamin Diokno said.
“However, the implication of abandoning some of our big-ticked infrastructure projects is something we are not comfortable with,” he added.
Finance Secretary Carlos Dominguez 3rd called the IMF proposal “tough advice” as the government was moving forward with the infrastructure drive.
“The recommendation will be discussed in the DBCC (Development Budget Coordination Committee) since this requires the collective efforts of its members,” he added.
The government, which is targeting 7.0-8.0 percent gross domestic product growth for 2018 until 2022, is banking on its infrastructure program to provide the impetus.
The ambitious infrastructure program will be bankrolled by tax reforms and concessional loans, with the overall budget expected to hit up to P9 trillion by 2022. Of the 75 high-impact projects under the program, 35 have already passed the approval process.
In the joint statement, economic managers noted that lowering the deficit cap would “ease the burden on monetary policy in managing inflation”.
However, they said that the rise in consumer prices — at a five-year high of 5.2 percent in June — was mainly due to “one-off and transitory” factors such as tax reforms implemented this year, higher crude prices and rice supply issues.
The proposed lifting of quantitative restrictions on rice — certified as urgent earlier this week by President Rodrigo Duterte — will reduce inflation by 0.4 percentage points, the economic managers said.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr., meanwhile, reiterated earlier pronouncements that monetary authorities were prepared to take “strong follow-through action” after raising key interest rates in May and June.
Socioeconomic Planning Secretary Ernesto Pernia, for his part, welcomed an IMF proposal to open more sectors to foreign investors.
“The draft 11th Regular Foreign Negative List, once approved, will be the shortest list to date,” he said.
“This will be out soon and we expect this to help boost job-generating foreign investments to the Philippines”.
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