To pay record debt, next President should ‘cut off fat’ from budget—Neda

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MANILA, Philippines—The fiscal consolidation plan to be turned over by the Duterte administration to the next President will include proposed cuts on non-priority budget items, the state planning agency National Economic and Development Authority (Neda) said.

The plan, currently being crafted to repay the huge debt pile and narrow the record budget deficit caused by the COVID-19 crisis, will not just contain new or higher taxes, Socioeconomic Planning Undersecretary Rosemarie Edillon said at a Go Negosyo forum on Thursday (Feb. 24).

Referring to the proposed policies, “many of them are really to cut off the fat in terms of the spending,” Edillon said.

Last Tuesday (Feb. 22), Finance Secretary Carlos Dominguez III said fiscal consolidation will entail targeted spending on more productive programs and projects like infrastructure.

“The only way to make this [fiscal consolidation] sustainable is by growing the economy faster and investing in the future. The fiscal deficit should be lowered to cover only infrastructure investments and not operational expenses,” Dominguez told members of the Financial Executives Institute of the Philippines (Finex).

The Department of Finance (DOF) was spearheading the fiscal consolidation proposal, which Dominguez had said will be pitched to all presidential candidates.

Edillon said some proposals will be aimed at increasing economic activities so that there will be more tax and non-tax revenues.

“It’s also about attracting the right investments so that we can bring in the right kind of businesses that will allow other businesses to expand more,” Edillon added.

Edillon said this was the reason President Rodrigo Duterte’s economic team pushed for amendments to antiquated laws on foreign investments, public service, and retail trade. The amended retail trade law was already enacted last year while the two other bills had been passed by Congress and were just awaiting the President’s signature.

These three measures were expected to further open the economy to more foreign investors in a bid to generate additional jobs post-pandemic, without touching restrictions enshrined in the 1987 Constitution.

Edillon said the government was aware of the tougher times wrought by the prolonged COVID-19 pandemic, which would be taken into consideration in the fiscal consolidation strategy. “We know that the first thing we have to do is to get the economy going,” she said.

Last year, the Washington-based Institute of International Finance (IIF) warned that emerging markets, like the Philippines, which wanted to ease their debt burden alongside economic recovery may face slower growth moving forward as they cut back on public spending.

In a Feb. 10 report, the IIF said “heightened social pressures and looming elections (including in Brazil, Colombia, Hungary, Kenya, and the Philippines) limit prospects for implementing revenue-increasing structural reforms” to bring down debts and deficits incurred when governments spent more despite weaker revenues to fight COVID-19.

Barcelona-based FocusEconomics said in a Feb. 22 report that fiscal imbalances will be a major risk to the Philippines’ economic growth this year.

FocusEconomics’ panelists of economists nonetheless raised their 2022 gross domestic product (GDP) growth forecast for the Philippines to 7 percent — within the government’s 7 to 9 percent target— from 6.9 percent previously.

“Growth should increase this year as greater vaccination coverage boosts spending. Fiscal and monetary stances should remain expansionary, while the government’s infrastructure program is likely to sustain investment,” FocusEconomics said, referring to “Build, Build, Build.”

But FocusEconomics said that “key risks include new COVID-19 variants, fiscal and external imbalances, fiscal decentralization reforms, the presidential election and inflationary pressures.”

“In politics, Marcos Jr. lengthened his lead in opinion polls for this year’s presidential election — despite a recent letter signed by top Filipino economists endorsing the candidacy of Leni Robredo, who languishes in a distant second place in polls,” FocusEconomics noted.

As the Omicron variant of the COVID-causing SARS Cov2 virus prompted a return to more restrictive alert level at the start of 2022, FocusEconomics projected first-quarter GDP growth to soften following the better-than-expected 7.7-percent expansion in the fourth quarter of 2021.

But as COVID-19 cases fall this month, FocusEconomics said it expects a rebound in consumer spending and tourism on the back of eased entry rules for vaccinated tourists.

TSB