Philippines has room to loosen fiscal policy – think tank

MANILA, Philippines — The Philippines is among the countries in emerging Asia that has room to support growth by loosening fiscal policy, provided that debt levels are checked and the budget deficit under control, London-based think tank Capital Economics said.

In a new regional report titled “Which countries are running out of fiscal firepower?” the macroeconomic research firm said most countries in the region have room to support the growth of their economies by loosening fiscal policy “ in the event that growth continues to disappoint.”

With weaker global demand seen in the coming quarters, the firm expects economic growth to slow down in most emerging Asian countries next year.

“Having reached a peak in the middle of last year, economic growth has slowed steadily across the region over the past year. The slowdown looks set to continue, with weaker global demand set to become a major drag on growth over the coming quarters,” the report noted.

The Philippines realized a slower growth of 6.1 percent in the third quarter of the year as rising inflation dampened consumer spending.

Still, the Philippines remains among the fastest-growing economies in Asia, next to Vietnam which registered growth of seven percent and China, which booked a 6.5 percent growth during the same quarter.

In the third quarter, growth was propped up by robust government spending, expenditure for private construction activities, and investment in capital formation in support of the administration’s infrastructure program.

“A number of other governments also have room to support growth by loosening fiscal policy, given that government debt levels are relatively low and budget deficits are largely under control,” said Capital Economics.

“Policy is likely to remain supportive in the Philippines and Thailand, which both have big infrastructure programs underway,” it added.

In order to fund its ambitious infrastructure plans, the government is targeting a budget deficit of three percent of gross domestic product (GDP) next year – which would be the second biggest since the global financial crisis.

In an earlier report, Capital Economic said while this is a manageable target, the government should take care to protect the growth in economic output and revenues.

Government debt is now currently at just over 40 percent of the GDP which is considered “low by historical standards and relative to other Asian countries” and as a result “a fiscal crisis is not imminent.”