THE GOVERNMENT does not see any need to increase spending beyond current targets, with officials claiming the Philippine economy is unlikely to slip into a recession.
National Economic and Development Authority (NEDA) Deputy Director-General Augusto B. Santos and Budget Secretary Rolando G. Andaya, Jr., reacting to a United Nations proposal that countries spend more to limit a global slowdown, said doing so would mean higher borrowing costs and could affect investments.
In the World Economic Situation and Prospects 2009 report, the UN economists said "fiscal policy stimuli" equivalent to up to 2% of a country’s gross domestic product (GDP) would "prevent the world economy from falling into a much deeper and more prolonged recession."
The NEDA’s Mr. Santos said "In the case of the Philippines, we are ... [already in] deficit spending and that is [equivalent to] 1% of the GDP or P75 billion. If we double this, probably the Philippine economy cannot afford that."
"We can go to higher deficit spending and fiscal stimulus if the Philippine economy is going on (sic) a recession but we are not ... If we go to higher deficit spending, that may hike interest rates and that would dampen productivity and economic growth."
Mr. Andaya agreed, saying: "We have to balance things. That (the UN proposal) would mean we would have to borrow more and that would increase our debts. Besides, interest rates will also go up. We do not need that because we are not in recession."
Albay Governor Jose Ma. "Joey" S. Salceda, a Palace economic adviser, urged caution.
"If we are in a surplus, that (a fiscal stimulus ) would be easy, that will be a no-brainer. But given the financial meltdown and lower global trade, then we need to skillfully calibrate any stimulus package," he told BusinessWorld.
"Interest spike driven by deficit spending ... [will be] short-lived and counterproductive because it will kill private corporations’ outlay ... who would invest if interests (rates) are high?," he added.
Mr. Salceda, a former legislator, market analyst and presidential chief of staff, said "the window for a fiscal stimulus has narrowed" because of the global slowdown.
Finance officials, meanwhile, said the government should not lose sight of maintaining sound fiscal performance.
"Fiscal stimulus is the antidote to recession. That is why we have increased our deficits for next year," Finance director for fiscal policy and planning office Ma. Teresa S. Habitan said.
"[But] It really depends on where you are spending. We should have more quality spending. We are spending more for infrastructure to create more employment and spending for public services to cushion the poor from the negative impact of a slowdown."
The government has targetted a fiscal gap of P102 billion for 2009, equivalent to 1.2% of GDP. This is an increase from an earlier target of P40 billion, or just 0.5% of GDP.
It also expects to balance the budget by 2010.
Filomeno S. Sta. Ana III, coordinator of the Action for Economic Reforms, noted that the main problem was efficient tax collection.
"I am okay with deficit spending, especially considering the economic downturn, to finance human development and infrastructure. But this should be accompanied by a structural improvement in tax collection," he said.
University of Asia and the Pacific economist Victor A. Abola said highly indebted countries cannot afford to spend 2% of their GDP.
"That is a very general rule that does not fit every country. They may fall into a debt spiral, which will constrain future growth. On the other hand, some low-debt nations like China can overspend even more than 2% without serious repercussions.
"As for the Philippines, we still have high debt ratios relative to peer-rated countries. Thus, we should proceed with caution ... [But] I think it is still okay for us to have a deficit of 1.5% to 2% without endangering the improvement of our debt ratios." — with a report from Ruby Anne M. Rubio
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