THE Philippines should improve its institutional capacity to be able to ramp up spending during a crisis, the International Monetary Fund (IMF) said.
IMF Representative to the Philippines Yongzheng Yang said it is challenging to undertake expenditures in a crisis such as the coronavirus pandemic, citing the unspent funds from the second stimulus package under Republic Act 11494 or the Bayanihan to Heal As One Act (Bayanihan II).
“The fact that not all funds allocated under Bayanihan II have been spent highlights the importance of building institutional capacity during normal times so that spending can be ramped up as needed during a crisis, both in National Government departments and local government units,” Mr. Yang said in an e-mail to BusinessWorld.
Data from the Department of Budget and Management showed agencies were only able to spend P141.45 billion from Bayanihan II as of June 25 or five days before the law’s expiration, leaving P63.55 billion unspent.
The unspent amount will be returned to the Bureau of the Treasury (BTr) since the disbursement period under the law was only until June 30.
Based on the IMF policy tracker as of July 1, fiscal support in the Philippines coming from the two stimulus packages, Bayanihan I and II, was equivalent to 4.4% of the country’s gross domestic product (GDP) in 2020.
Government support through other measures including credit guarantees made up 0.6% of 2020 GDP.
With the expiry of the second stimulus package, IMF’s Mr. Yang said the Philippines still has fiscal space that can be utilized to support the economy despite the increase in public debt during the crisis.
He also stressed that efficient spending of the P4.5-trillion national budget is critical given the needs of those hardest hit by the pandemic.
“The 2021 budget strikes an appropriate balance between recovery needs and fiscal prudence under the current circumstances,” he said.
“Steadfast execution of the 2021 budget with continued flexibility to respond to evolving priorities would be critical to support vulnerable households and businesses as well as to provide a boost to economic activity.”
Overall spending increased 29.2% to P456.7 billion in May from a year earlier, based on latest data from the BTr. It also grew 8.8% to P1.811 trillion in the January to May period compared with the first five months of 2020.
Asked whether another stimulus package will be critical with the expiry of Bayanihan II, Mr. Yang said it is more important that government policies are flexible enough to respond to evolving priorities.
“The critical task is to speed up spending where it is needed,” he said.
House Bill 9411 or the Bayanihan III, which proposes a P401-billion stimulus package, has been approved by the House of Representatives. Its counterpart Senate Bill 1953 is still pending at the committee level.
Mr. Yang is hopeful that the Philippines’ “reform momentum” will continue.
“These reforms have helped the country build economic buffers (e.g., relatively low levels of public debt and ample foreign reserves) against shocks such as the pandemic and natural disasters, and enabled the country to achieve rapid economic growth prior to the pandemic. I hope the reform momentum will be maintained, including during the upcoming election period, as it has been through the pandemic,” he said.
Before the pandemic, debt-to-GDP ratio stood at a record low of 39.6% as of end-2019, based on BTr data. This ratio has climbed up to 60.4% as of end-March 2021, above the 60% threshold considered to be manageable by multilateral lenders.
The IMF in June lowered its 2021 growth outlook for the Philippines to 5.4% from 6.9% previously, citing the impact of the reimposed lockdown in March. The latest projection is below the 6-7% growth target set by the government in 2021. — Luz Wendy T. Noble