Success of fiscal stimulus package ‘uncertain, ‘–ADB

THE Asian Development Bank (ADB) on Tuesday sees “uncertainty” in the implementation of the Philippines’ economic stimulus package due to issues surrounding the disbursement of funds.

In a briefing, Thomas Crouch, ADB deputy director general for Southeast Asia, said the delay in the implementation of the economic stimulus package is one of the risks to the Philippine economy.

The government targets to spend about 60 percent of the P160-billion economic resiliency plan in the first half of the year.

“We’re already half-way through the first half of the year. So it’s not an impossible task, but a difficult task,” Crouch, a former Philippine country manager for the ADB, said, adding the government should spend the money right now.

“This is an issue that is faced by many countries in the Asia-Pacific region. They have drawn up the stimulus package, which is fine, but they have to implement those stimulus package[s]. There is some uncertainty there. That’s all that I’m saying,” he said.

Crouch said drawing up the plan and having the budget approved is just the first stage of the process. “So, one of the risk is how you can disburse that fund,” he said.

In the Philippines, the planned stimulus package of P330 billion is about 4.4 percent of the country’s gross domestic product (GDP). A proxy for economic output, GDP is the amount of good and services produced in a country.

The stimulus package in Indonesia stands at about 1.5 percent of GDP, while in Thailand, Malaysia, Korea, and Singapore, the ratio stands at 1.3 percent, 9 percent, 3.2 percent, and 8 percent, respectively.

Of the total Philippine package, P160 billion is part of the government’s 2009 budget; P100 billion represents private-public sector partnership; P40 billion, legislated tax relief measures; and P30 billion, temporary benefits from state-run social security agencies.

The ADB projected that the country’s stimulus package could raise economic output by more than 2 percent in the next two years.

“If spending falls short as a result of funding or other constraints [to] 50 percent of the announced, the impacts on GDP would moderate to 1.4 percent and 1.9 percent in 2009 and 2010, respectively,” the regional lender said.

The ADB said while the intent to boost spending is clear, many governments face constraints that hamper implementation.

“These include constraints in funding and in institutions—public agencies in developing economies often lack the capacity to plan and implement large spending projects in a timely way. In designing fiscal policy responses to the global downturn, governments must take these considerations into account,” the lender said.

It said a country’s debt position is important if its fiscal stimulus requires much higher levels of government borrowings.

Crouch said the ADB is not concerned about the Philippines’ target of a 2.2-percent budget deficit to GDP ratio. “We consider that targeting a 2.2 percent of GDP is OK and can be managed in the short term, particularly because of the good work that is already been done on improving debt borrowing,” he said.

The deficit-to-GDP ratio is a closely watched measure of how long a government can incur revenue collection shortfalls.

“There’s nothing intrinsically meritorious to balance the budget. There are times when you need to spend,” Crouch said.

The inter-agency Development and Budget Coordinating Committee sees a funding gap of 1.5 percent of GDP next year, 1 percent for 2011 and 0.5 percent in 2012. –Darwin G Amojelar, Senior Reporter, Manila Times