Deficit at 3.6% of GDP to spur economic growth – BSP

The Bangko Sentral ng Pilipinas (BSP) said its decision to increase the budget deficit this year to 3.6 percent of the gross domestic product (GDP), from 3.2 percent as earlier programmed, should not mess up the growth plans that the government has envisioned. The shortfall of some P300 billion to P325 billion should not upset public finance as some fear it would cause domestic interest rates to spike up or make the peso lose its value, the BSP said. "Even if the deficit has been increased, its relative size to GDP remains manageable at below 4 percent. At the same time, its impact on public liability is believed to be modest while the impact on economic growth is excitingly very promising," BSP deputy Gov. Diwa C. Guinigundo said in an e-mail to reporters. "Given such a structure of public finance, we do not expect this to upset the relative stability of both interest rates, which are at historical lows, and foreign exchange rate which remains broadly competitive," he said. If this new modality catches the imagination and support of the markets and the investors, we might in fact experience additional foreign exchange inflows," Guinigundo added. Recent public finance numbers that Finance Secretary Cesar Purisima bequeathed from his predecessor, Secretary Margarito Teves, have been unsettling, bankers said, with the actual five-month deficit of P162.1 billion already past the six-month goal of only P145.2 billion. Which forced the new economic team to recast the revenue objectives of the main collection agencies to reflect a program that pointed out stronger collections early rather late in the fiscal year. "The thrust of the national government actually is more than the calculus of revenues and expenditures. It also intends to leverage on public-private partnership. This means that we can expect higher economic growth even with relatively modest public spending because the private sector will be summoned to provide additional driver of economic growth without so much fiscal drag," Guinigundo said. "This can be exemplified by such public work projects as expressways in which private funds are leveraged to put up such infrastructures without much cost to the public because the private sector can take advantage of the positive externalities of such public work projects. This is a potent source of growth that can bring the Philippine economy to a higher growth trajectory and in the process make a significant dent on poverty," he said. "We need to grow much more than what we have traditionally achieved because we have a lot of catching up to do. We have a lot of impoverished and unempowered people who need public support in terms of education, health services, etc. We have a huge need for critical infrastructure including power and facilities. One cannot simply talk his way to great economic achievements without spending and spending wisely," Guinigundo said. He said some good could possibly come out of the various fiscal measures the government plans to implement both immediately and over the medium term. "I would expect the Philippines could in fact win a credit upgrade. A very promising real sector performance with stable inflation, healthy external liquidity and sound banking system with funding from both private and government maintaining a medium-term fiscal consolidation [program] with a medium-term deficit-to-GDP ratio of 2 percent within a framework of good governance," the deputy governor said. "These are the essential ingredients of great market confidence and eventual credit rating upgrade. We should expect more investments to come in once we win such an upgrade," he said. —With Jesse Edep/VS, GMANews.TV