Wise state spending, sustainable financing to drive growth

Wise state spending, sustainable financing to drive growth —GlobalSource

Wise state spending, sustainable financing to drive growth —GlobalSource


The larger national budget being proposed for next year won’t guarantee significant economic gains, think tank GlobalSource Partners said, adding that wise spending and sustainable financing are the more important drivers of growth.

In a commentary sent to reporters on Tuesday, Diwa Guinigundo, analyst at GlobalSource, said the Marcos administration should spend more on critical infrastructure like power, as well as other priority areas such as health and education to ensure “judicious utilization” of its planned P6.352 trillion budget for 2025.


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Spending on those areas, Guinigundo explained, would “strengthen the country’s connectivity and digitalization” and boost production of both goods and services, which may help temper inflation and reduce poverty.

“Some market analysts seemed to have missed the point about the proposed significant increase in next year’s budget, equating it with additional push for higher economic growth,” Guinigundo, a former central bank deputy governor, said.

”As some academics correctly pointed out, the bigger magnitude is no guarantee of any significant gains in economic growth or development,” he added.

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The inter-agency Development Budget Coordination Committee (DBCC) last month unveiled the Marcos administration’s P6.352-trillion spending plan for 2025, which is equivalent to 22 percent of the country’s gross domestic product. The amount is 10.1 percent larger than this year’s outlay of P5.768 trillion.

House Speaker Martin Romualdez had said Congress would try to approve the proposed budget in three months. The Department of Budget and Management (DBM) is planning to submit the proposed spending plan to Congress “within one week” before President Ferdinand Marcos Jr. delivers his State of the Nation address on July 22.


Sustainable financing

Data showed that despite the bigger national budget for 2024, the economy grew 5.7 percent year-on-year in the first quarter, slower than the Marcos administration’s 6 to 7 percent target.

Among the GDP components, government spending grew 1.7 percent in the January to March period, lower than the 6.2-percent uptick in the first quarter of 2023. Economic officials said the El Niño onslaught had disrupted construction activities during the period, likely slowing down government expenditures on infrastructure as a result.

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Moving forward, the government said it would continue to catch up on its spending so it could make a bigger contribution to second-quarter GDP growth. Latest Treasury data showed state spending amounted to P2.3 trillion year-to-date, up by 17.65 percent.

Apart from wiser spending, GlobalSource’s Guinigundo said a “sustainable financing” to bridge a large budget deficit is also key to higher economic growth. That said, he explained that the Marcos administration’s decision to not impose new taxes and instead depend on collection efficiency may risk stoking higher borrowings.

“With the persistent issues in governance, the old formula of intensifying tax collection and ensuring compliance with tax laws may not deliver sufficient revenues,” Guinigundo said.

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“Short of what is required, the Government may also have to increase its borrowings,” he added.

TAGS: economy, Global Source

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