RP urged to go easy on spending

IMF expresses concern over fiscal situation

MANILA, Philippines – The International Monetary Fund (IMF) said the Philippine government should put on the breaks on its stimulus spending next year to prevent the country’s fiscal situation from deteriorating further.

Denis Botman, resident representative of the IMF to the Philippines, said the government would not have much financial muscle to continue its aggressive pump-priming efforts in 2010. He said the government would need to focus on improving revenue collection if it wanted to shore up spending on social services and infrastructure.

“The government has to shift to a neutral fiscal stance next year. There is not much room for fiscal stimulus because the country’s debts are too high,” Botman said.

The IMF executive said the Philippines’ debt-to-GDP (gross domestic product) ratio, which is at 56 percent, was higher than most of its neighbors. He said investors would consider this ratio in deciding whether to do business in the country.

The government’s outstanding debts stand at over P4 trillion.

The government has set a budget deficit ceiling of P250 billion, much higher than the actual gap of P68.1 billion last year, to allow higher spending on infrastructure and social services.

According to economic managers, stimulus programs are necessary to avert a recession, now affecting other countries.

Observers said, however, that the government could breach its deficit ceiling for the year, explaining that the budget gap in the first eight months of the year already stood at P210 billion.

Botman said the government would need to be mindful of its fiscal situation, suggesting that the government should go back to its earlier goal of reducing the deficit.

Under the original fiscal target, the government was supposed to have posted a balanced budget by 2008 and a surplus by this year. But the global economic turmoil changed all that. The downturn, which had led to the collapse of many corporate giants in the United States in 2008, forced governments all over the world to work on stimulating their respective economies.

The Department of Finance earlier said it was not targeting to balance the budget by 2013.

Growth of the Philippine economy slowed to 0.6 percent in the first quarter largely due to weak global demand for exports.

For the entire year, the government expects the domestic economy to grow between 0.8 and 1.8 percent, slower than the actual growth of 3.9 percent last year. Despite the slowdown, economic managers said growth projections, if realized, would still be respectable compared with that of other economies which had contracted.

Botman said many economies would post faster growth next year, including the Philippines.

The worst of the crisis is over and the world economy is on its gradual way to recovery, he said.

Even if the government were to undertake huge deficit spending next year, the economy would still be able to post faster growth. The IMF expects the Philippines to grow by 3.2 percent next year.

Botman said the economy’s growth for next year would come from consumption, which would be supported by growth in remittances from overseas workers.

According to the IMF, remittances may still grow by at least 4 percent this year from last year’s $16.4 billion despite the downturn. Remittances will further grow next year as the global economy rebounds, the IMF added.

The IMF official also said the country’s export sector would recover from the plunging global demand. He said the Philippines could expect growth in exports next year.

From January to July, exports plummeted beyond 30 percent because of weak demand for electronics, the country’s major export product. –Michelle Remo, Philippine Daily Inquirer