Growth goals kept due to consumer spending hike

MANILA, Philippines - Growth targets need not be adjusted for now as consumer spending is expected to continue spurring economic activity, a preliminary government analysis showed. This year’s inflation forecast, however, may be lowered and the deficit cap will have to be increased given the likelihood of reduced revenues, Finance Undersecretary Gil S. Beltran said. With respect to the growth target, “It’s still the same for now," he said. The proposed changes, said Mr. Beltran, were agreed upon yesterday during a Development Budget Coordination Committee’s Executive Technical Board (DBCC-ETB) meeting. The recommendations will be tackled by the DBCC this Friday. “The board believes that the inflation be lowered to 3-5 percent from 6-8 percent because of the low prices of rice and oil," he said in Filipino. “While the world economy is going through a deeper recession, given our 2008 performance we can grow faster. Our economy is more resilient than we earlier expected ... consumption spending will be robust." Lower inflation will encourage consumer spending but is also expected to cut government revenues. Asked if the government would be adjusting its deficit targets, Mr. Beltran said: “We have no choice. If your inflation is lower then your revenues are lower." He declined to cite a specific figure but reiterated estimates of a budget shortfall equivalent to 2 percent of gross domestic product (GDP). The current deficit cap of P102 billion is equivalent to 1.2 percent of GDP. Mr. Beltran said the business process outsourcing, mining, and agriculture industries would serve as the country’s growth drivers this year. The DBCC-ETB is composed of representatives from the Finance department, National Economic and Development Authority, Budget department, and Bangko Sentral ng Pilipinas. The DBCC is composed of the heads of the said departments. “The DBCC can do anything with these recommendations," Mr. Beltran said. The country posted full year growth of 4.6 percent in 2008, well within the official target of 4.1 percent to 4.8 percent. It was, however, lower than 2007’s 7.2 percent. The government expects the economy to grow by 3.7-4.7 percent this year. Three major credit rating agencies have predicted lower growth this year, with Moody’s 3.3 percent the most optimistic. Fitch Ratings and Standard & Poor’s have a much lower 2 percent and 2.2 percent, respectively. The government aims to limit this year’s deficit to P102 billion or 1.2 percent of the GDP. Socioeconomic Planning Secretary Ralph G. Recto has said the 2009 deficit could reach P114 billion, mainly due to spending for the 2010 elections. Budget Sec. Rolando G. Andaya, Jr. has admitted that the deficit may hit P140 billion or 2 percent of the GDP due to the need to spend more on infrastructure and social services. Fitch expects the 2009 fiscal gap to reach P184.91 billion while Moody’s has said a higher-than-planned deficit would be understandable as long as it does not exceed 2 percent of the GDP. Finance Sec. Margarito B. Teves has also said that deficit targets are not “sacrosanct" and may be changed in case the government sees the need to hike spending to protect the economy. - Alexis Douglas B. Romero, BusinessWorld