Fiscal deficit seen to exceed government target for this year

MANILA, Philippines -The fiscal deficit would increase beyond the government’s original target for this year, but economic managers said the budget gap would be widened by lower revenues and not increased spending for pump-priming.

Budget Undersecretary Laura Pascua told reporters that the Development Budget Coordinating Committee (DBCC) has approved a higher deficit this year.

Pascua said the deficit would be allowed to go above the original P102-billion target for 2009 but economic managers are concerned about having the deficit go up too high.

“Everybody believes spending will be the key but the economic resiliency program will have to take account of available resources because we don’t want the deficit to go up so high that it would adversely affect interest rates,” Pascua said.

The International Monetary Fund (IMF), credit rating agencies and market analysts said the government could afford to tolerate a bigger deficit of up to two percent of the country’s gross domestic product (GDP).

Pascua said the DBCC is looking at a deficit “around that level”.

“That’s the emerging thinking by the economic managers,” she said.

The DBCC, however, is still tied up in knots over macro-economic targets and projections for 2009 but Pascua said at least one thing was clear: the government would be sticking with its budget and there would be no incremental spending outside the amount already allocated for the economic stimulus plan.

For 2009, the Arroyo administration had earmarked P360 million worth of funds to stimulate the economy through pump-priming activities. Pascua said there would be no change in this plan.

But Pascua said the budget deficit would be higher than the P102-billion programmed for the year anyway, largely because of the anticipated decline in revenue collection.

Pascua said weak revenues would result from the effects of macroeconomic weakening which would have a negative impact on corporate incomes in general.

In the meantime, the DBCC is still debating over whether to retain the 2009 projected GDP growth or aim for a lower level.

Economic officials do not want to touch the 3.7-4.7 percent growth target for the country’s gross domestic product (GDP), saying that the growth momentum would continue in 2009.

The National Economic and Development Authority (NEDA) said earlier that the country’s GDP growth would not fall below the low-end target of 3.7 percent for this year.

But the Bangko Sentral ng Pilipinas (BSP) said there was scope for revising the target especially after the International Monetary Fund (IMF) admitted that major economies would fall into actual depression this year.

“The crisis began in September and hit hard in October, November and December,” said NEDA spokesman Dennis Arroyo. “Hence, the fourth quarter of 2008 was already in the crisis era. Yet, the economy still grew by 4.5 percent.”

On the other hand, the BSP said the government’s growth target should be reviewed and possibly recast in the light of rapidly shifting global conditions that indicate a sharper slowdown than anticipated.–Des Ferriols, Philippine Star