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Central bank official says wider deficit acceptable


Letting the budget deficit go wider is not the real issue as long as the money reaches its intended recipients, a Bangko Sentral ng Pilipinas (BSP) official said. BSP Deputy Gov. Diwa C. Guinigundo was reacting to the proposed raising of the value-added tax from 12 percent to 15 percent which was rejected by president-apparent Sen. Benigno C. Aquino III. “I am all for higher spending by the government because the economy needs it. Many social sectors need higher government expenditure but then again that should be complemented and supported by higher revenues," Guinigundo said. “You need to be able to put up the infrastructure needed to ensure that economic activity is sustained," Guinigundo said. The next government, he said, should ensure fiscal sustainability, which relies heavily on revenue collection. “It may or may not involve new taxes. It may or may not involve better tax administration. But it can be a combination of these two factors that will translate to better public finance," Guinigundo said. “There is a possibility that you will breach your target deficit-to-GDP ratio, but to me that is not a bad thing as long as the new government would be able to communicate to the markets and to the investors that we may have to do these because we want to make sure that the necessary infrastructures are put in place so that we can really sustain a high economic growth of 7 or 8 percent," Guinigundo said. “What is important is at the end of the fourth or fifth year or the last year of the administration we should be able to show a very good improvement in terms of the debt profile and the deficit profile. When we talk of deficit, the deficit-to-GDP ratio should approximate a near balance," he added. According to finance officials the ratio, seen rising to 58 percent of local output this year, remains manageable even if high. Public debt is often fed by inadequate revenues and inordinate spending, issues that have hounded many governments in the past. Government debt rose by 4.4 percent or P188.2 billion to P4.42 trillion in November, because of low revenue collections and faster budget disbursements in the wake of storms Ondoy and typhoon Pepeng which devastated large areas of Luzon last year. Guinigundo said a higher debt-to-GDP ratio does not matter much "as long as the economy is growing and as long as inflation is under control. I think the market will understand and the market will not penalize us (for that)." —VS, GMANews.TV

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