RP won’t benefit fully from stimulus plan – Moody’s

Published by rudy Date posted on March 24, 2009

MANILA, Philippines – Countries in Southeast Asia including the Philippines are likely to find it difficult to fully benefit from their economic stimulus programs because of their high government debt ratios, Moody’s Economy.com, a unit of Moody’s Investors Service, said in a paper on stimulus spending.

The government has allotted P330 billion for the country’s Economic Resiliency Package, aimed at stimulating the economy amidst the global financial turmoil.

Moody’s said that countries such as the Philippines are likely to “see lower fiscal multipliers because of high government debt ratios.”

It noted that the Philippines has a debt-to-gross domestic product (GDP) ratio of 52 percent, higher than that of Malaysia which has a ratio of 41.9 percent. India has a debt-to-GDP ratio of 77 percent.

The debt-to-GDP ratio is the ratio of the government’s debt to the country’s total economic output.

The Moody’s unit explained that a multiplier effect occurs when economic activity is generated beyond the initial stimulus amount.

“When a government mails checks to citizens, the effect on the economy can grow as the checks are spent, if jobs are generated in shops and factories, boosting wages for other people who then spend their paychecks, multiplying demand. This process continues indefinitely, but the effect declines over time as some funds are saved or sent abroad in each spending round. Multipliers can be greater or lower depending on the country and its circumstances. If consumers are inclined to save rather than spend their stimulus checks, the knock-on effects will be weaker. If they spend on imports instead of domestically produced goods, their spending leaks out of the domestic economy,” the Moody’s unit said.

As such, the Moody’s unit said that efforts to stimulate growth through consumer spending would be more effective in countries like the Philippines.

It noted that the government is on the right track if it focuses on tax breaks and social insurance in the Philippines as this would help boost consumer spending instead of focusing on infrastructure spending.–Iris C. Gonzales, Philippine Star

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