STATE economic managers have bucked the International Monetary Fund’s (IMF) recommendation for the government to reduce its budget deficit ceiling, citing the need to speed up implementation of major infrastructure projects.
A joint statement released on Thursday by the government’s Investor Relation’s Office quoted Finance Secretary Carlos G. Dominguez III as saying that the proposal to cut the fiscal deficit to 2.4% of gross domestic product (GDP) in 2018 and 2019 amid inflationary concerns was “tough advice.”
“Given deliberate improvements in our process, projects are in full steam to realize benefits envisioned in a timely manner,” Mr. Dominguez said.
“We do acknowledge that adjustments may be necessary to adequately respond to the changing macroeconomic landscape both internal and external,” he added.
Yet he said that the recommendation “will be discussed in the DBCC (Development Budget Coordination Committee) since this requires the collective efforts of its members.”
To recall, the DBCC in its 173rd meeting on July 2 capped the government’s fiscal deficit ceiling at three percent of GDP this year, and raised it to 3.2% for 2019 from three percent in 2016 and 2017, in a bid to accelerated sending on its P8-trillion “Build Build Build” infrastructure program.
The deficit cap is programmed to return to the three percent level next year, until 2022, as the momentum of faster public infrastructure spending steadies, the economic managers said.
The IMF’s 2.4% recommended ratio of fiscal deficit to GDP is steady with the actual 2.4% deficit logged in 2017.
Inflation averaged 4.3% in last semester after June’s 5.2%, above the central bank’s 2-4% target. The central bank forecasts inflation to finish at 4.5% this year, and return to target next year.
The IMF expects the Philippines GDP growth to clock in at 6.7% in 2018 and 2019, steady from 2017. It also expects inflation at 4.7% this year.
Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. meanwhile reiterated the central bank’s commitment to combat inflation after hiking policy interest rates by 25 basis points each in its May and June meetings. He has signalled that “strong” policy adjustments are in store when the Monetary Board meets to review policy anew on Aug. 9, hours after the second-quarter GDP report and two days after the July inflation report.
“The BSP is firm in its commitment to price and financial stability. Elevated inflation this year was mainly on account of supply-side factors. However, to address potential second-round effects, the BSP saw it proper to hike policy rates last May and June. We are also prepared to take a strong follow-through action to anchor inflation expectations and address any brewing demand-side pressures,” said Mr. Espenilla.
The Executive has also asked Congress to impose a regular tariff scheme on imported rice that is estimated to slash retail prices of the grain by about P7 per kilogram.
“There will be no letup in the government’s policy of aggressive spending on infrastructure and human capital development while maintaining fiscal prudence, in step with President Rodrigo Duterte’s vision of reducing poverty incidence to 14% and transforming the economy into an upper middle-income one by 2022,” said Mr. Dominguez.
Budget Secretary Benjamin E. Diokno for his part, said: “We will subject the IMF Staff proposal to a thorough review. Reducing the budget deficit program to 2.4% of GDP is feasible. However, the implication of abandoning some of our big-ticket infrastructure projects is something we are not comfortable with.”
“We are already gaining significant progress in our aim to accelerate infrastructure development to boost the country’s competitiveness and improve the quality of life of Filipinos. We do not intend to slide back,” he added.
Mr. Diokno assured that the administration’s fiscal policy will “continue to be prudent, sustainable, and supportive of our investments in public infrastructure and human capital development.”
Socioeconomic Planning Secretary Ernesto M. Pernia meanwhile said: “We are determined to stay the course on tax reform.”
“We are also carefully monitoring our widening trade deficit that’s largely caused by substantial capital goods imports that should enhance growth potential, thereby sustaining poverty-reducing economic development,” he added. “Further, we are vigorously implementing our Export Development Plan.” — Elijah Joseph C. Tubayan