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Business

Government urged: Invest on growth drivers, worry less about deficit

Elijah Felice Rosales - The Philippine Star

MANILA, Philippines — As the Philippines enters another year with a raging pandemic, the government should prop up its spending on structural reforms to make sure economic recovery will touch the lives of more Filipinos, economists told The STAR.

In addition, they said the government should worry less about bringing down its fiscal deficit this year as targeted by the Cabinet-level Development Budget Coordination Committee (DBCC).

Ateneo de Manila University economics professor Leonardo Lanzona said the government has to invest in growth sources, especially infrastructure and research, in 2022 as developing these segments will push the economy to recoup its losses from the pandemic.

Lanzona cited as an example the 7.1 percent growth of the economy, as measured by the gross domestic product, in the third quarter. He said the GDP expanded during the period due to, among others, the 13.6 percent jump in state expenditures driven by public construction.

“All of these suggest that the country’s economic recovery hinges on the government’s infusion of funds. It is unlikely then for the fiscal deficit to decline given the need for more of government intervention,” Lanzona said.

“If the government can direct expenditures and investments into the proper sources of growth, budget deficits should be no concern particularly since the economy has excess capacity after the crisis,” he said.

Jose Enrique Africa, executive director of think tank IBON Foundation, said the government can start worrying about its debt and deficit targets once it spends enough to create jobs, expand revenue sources and improve household incomes.

“The rebound from reopening can be turned into a rapid and sustainable recovery if decent jobs are created, incomes raised and consumption picks up,” Africa said.

The DBCC plans to trim the government’s budget deficit next year as it starts to contain the spread of the virus and reopen the economy to its full capacity. The DBCC looks to slash the 2022 deficit to 7.7 percent of GDP at P1.65 trillion, from a 2021 program of 8.2 percent at P1.65 trillion.

To do this, revenue collection should increase to P3.3 trillion, or 15.3 percent of the economy, in 2022. On the other hand, government disbursements should drop as a share of the GDP to 23 percent next year, 21.6 percent in 2023 and 21 percent in 2024, from 23.8 percent in 2021.

Lanzona said the government should also sustain its spending spree in building education and medical infrastructure to overcome the risks posed by the virus and its new variants.

The Asian Development Bank (ADB) warned that students in Southeast Asia could forfeit up to $247, or around P12,300, in potential earnings for every year that schools are shut due to the pandemic.

In the Philippines, only 17.7 percent of the population has access to the internet based on the National ICT Household Survey 2019, compelling policymakers to study the resumption of face-to-face schooling as early as the first quarter of 2022.

On the other hand, Africa said the government should identify where it can source funds to give out cash transfers to displaced workers and the poorest households. He said recipients of these financial assistance would end up spending them on their own communities to the benefit of micro, small and medium enterprises (MSMEs).

“Much of this consumption will also be in their communities, which will be a significant boost to MSMEs. More purchasing power in the local economy will go far in reviving smaller enterprises and spurring hiring and investment,” Africa said.

The government’s economic team has opposed the passage of the Bayanihan to Arise as One Act, also called Bayanihan 3, allocating P400.5 billion for the realization of programs and projects mitigating the impact of the pandemic on vulnerable sectors.

More than half of the requirement at P216 billion will be deployed to distribute P2,000 in cash aid to each Filipino, while P54.6 billion will be used to pay for the pension arrears of retired military and uniformed personnel to fill in their cash needs.

Bayanihan 3 also directs P30 billion for the government’s social safety net for families affected by the pandemic and another P30 billion for agricultural interventions geared toward steadying food prices and supply.

On the side of economic managers, they said they want the Philippines to tread deficit spending with caution. They added that resources should be conserved in the event that the health crisis extends no thanks to the mutation of new variants.

“There is still much room to be flexible with respect to our fiscal targets. Deficits and debt are medium- to long-term problems that can also be mitigated by substantial short-term government spending that stimulates growth and revenue generation,” Africa said.

DBCC

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