P1.3-trillion economic stimulus vs coronavirus ‘not fundable,’ says NEDA

Economic managers say the government can only afford P130 billion for spending programs. Lawmaker Stella Quimbo says that is ‘a pitiful response to the biggest economic catastrophe since the World War.’

by Ralf Rivas, 5 Jun 2020

MANILA, Philippines – Lawmakers are aiming to pass a massive P1.3-trillion economic stimulus package to jolt the economy back to life from the coronavirus pandemic. The state’s economic planners, however, are saying that such an amount is “not fundable.”

Acting Socioeconomic Planning Secretary Karl Chua on Friday, June 5, explained that the amount legislators are proposing would require new revenue sources, which are “very limited.” (READ: Duterte borrows another $500 million from World Bank for coronavirus)

He added that multilateral lenders and the bond market are not considered new sources of revenue.

The Constitution states that for special appropriations, funds have to be “actually available.” They must be certified by the Bureau of the Treasury and raised through a corresponding revenue source.

Some lawmakers view that loans can be considered as new revenue sources.

“We are in discussion with the congressmen because such an amount would not be fundable, because any supplemental budget or standby appropriation would require new revenue sources, and that is very limited and financing or borrowing is not a revenue source,” Chua said.

He noted that economic managers are proposing only P130 billion for spending programs, which would bring the budget deficit to a maximum of 9%. (READ: Where did funds from 2019, 2020 budgets for coronavirus response go?)

In a strongly-worded text message to Rappler, Albay 2nd District Representative Joey Salceda questioned Chua’s remarks.

“Tell that to 8 million families whose jobs were destroyed,” the congressman said.

Salceda pointed out that the country’s debt-to-gross domestic product (GDP) ratio is at a record low of 41.5% as of 2019, which means that the government has borrowing capacity. (READ: Gov’t debt jumps to record P8.6 trillion in April 2020)

Meanwhile, Marikina City 2nd District Representative Stella Quimbo, another proponent of the stimulus bill, told Rappler that Congress first needs to see official reports of the government’s cash position, especially since new loans have been secured.

Macroeconomic projections and employment statistics amid the pandemic must also be revisited.

“A standby appropriation is precisely what is needed in a situation where cash flow is uncertain. Spending will happen when the revenues are available. So I think it is not proper for NEDA (National Economic and Development Authority) to say at this point that the economic stimulus proposal is not doable,” the economist-turned-congresswoman said.

Quimbo added that the proposed P1.3-trillion spending will run for 3 years, with P708 billion proposed for 2020.

For Quimbo, the P130 billion proposed by economic managers is “a pitiful response to the biggest economic catastrophe since the World War.”

How it works

Chua, who was former finance undersecretary, said the government should instead “maximize the impact” of the policy tools introduced by the economic team and the central bank.

He said the team’s proposal amounts to a total of P847 billion worth of fiscal, monetary, and regulatory measures.

Directly giving cash to households and building infrastructure are not the only means to stimulate the economy, Chua argued.

He said money can be coursed through financial institutions and state-owned banks, which would then maximize the impact.

For instance, Chua said infusing P10 billion into the Land Bank of the Philippines (Landbank) would be better than giving P10 billion to people in need.

Chua said Landbank can leverage the P10 billion up to 8.5 times, which means it can provide lending support to farmers and small businesses up to P85 billion at zero interest.

“We prefer it that way because if we give the money directly, as a subsidy or loan, it will just be P10 billion because the government is not a bank. If we course it through the banking system, that can be leveraged 8.5 times,” he said.

The same logic goes for the government infusing P10 billion into the Philippine Guarantee Corporation, which Chua said could leverage P10 billion up to 20 times to P200 billion.

Meanwhile, Chua called on lawmakers to pass the proposed Corporate Recovery and Tax Incentives for Enterprises Act, which in theory would provide over P40 billion in tax incentives and more cash due to lower taxes. (READ: Business groups press Duterte for ‘more substantial’ economic plan vs virus)

The Bangko Sentral ng Pilipinas earlier unleashed various monetary tools, like lowering interest rates and banks’ reserve requirement, as well as pumping P300 billion into government coffers. – Rappler.com