Gov’t vows ‘dramatic’ rise in spending in H2

The budget department said spending would “dramatically” rise in the second half in such a way that the deficit for the year would widen to at least P260 billion.

Budget Secretary Florencio Abad said there was a tall order for his office to reverse in the second half the underspending seen in the first six months.

Although underspending helps reduce the government’s budget deficit, Abad said there was a need to beef up spending, especially on infrastructure and social services, to make the economy meet the growth targets for the medium term.

“There will be a dramatic increase in spending in the second half,” Abad told reporters Tuesday after the Senate hearing on the proposed national budget for 2012.

Under this year’s fiscal program, the government is allowed to post a budget deficit of as much as P300 billion. In the first half, however, the deficit stood at only P17.5 billion as public spending fell way below the target.

Officials earlier said the lower-than-expected spending in the first half was a result partly of efforts to scrutinize expenditure proposals, consistent with the “good governance” policy of the Aquino administration.

Some economists, however, said the inability of the government to maximize spending limits was keeping the economy from reaching its growth potentials.

In response, Abad said the administration was aware of the need to spur spending to aid in the economy’s growth.

He said spending in the second half would accelerate in such a way that the deficit would reach P260 billion, or 2.6 percent of the country’s projected gross domestic product [GDP] for this year.

“The deficit will be kept at a minimum of 2.6 percent of GDP, or P260 billion. This is because we [government] don’t want a deficit next year that could be much higher than this year’s,” Abad pointed out.

Under the fiscal program for 2012, the deficit could hit as much as P300 billion, or 2.6 percent of the projected GDP for next year.

Abad said it would be prudent to keep the deficit this year at a figure similar to next year’s to avoid a scenario where the deficit for 2011 would be much smaller than that of 2012.

A scenario where this year’s deficit is much lower than next year’s could be read by the market as an indication of a deterioration in the country’s fiscal performance, something that would be bad for the country’s credit image, Abad explained.

Meantime, Finance Secretary Cesar Purisima said the directive for higher spending in the second half was consistent with the desire to fast-track growth of the economy.

“We [government] will maximize spending, but we will not engage in wasteful spending or corruption. We need to spend more on infrastructure and services so that the economy will be more efficient,” Purisima told reporters after the Senate hearing on Tuesday.