IMF official: Philippines should stick to deficit-reduction schedule

A visiting official of the International Monetary Fund said that the Philippines would do well to stick to its deficit-reduction target because any effort to boost growth of the economy should not come at the expense of a gaping budget deficit.

IMF deputy managing director Naoyuki Shinohara, who was in Manila for a four-day visit until Monday, considered the deficit-reduction schedule of the Philippine government to be prudent.

Shinohara also said that the government should stick to its deficit-reduction tack despite the economic slowdown seen in the first half of the year.

Under the government’s fiscal plan, the state’s budget deficit should be reduced to 2 percent of the country’s gross domestic product (GDP) by 2013 from an estimated 3 percent this year.

Also, the government wants to trim down the state’s outstanding debt—now equivalent to about 55 percent of GDP—to below 50 percent over the next two years.

Shinohara noted the strong fiscal position now enjoyed by the Philippines and other emerging markets, which gives them a huge advantage over more advanced economies.

While the Philippines still has a wide budget gap and is saddled with debt, these concerns are within manageable levels, the IMF official said.

“Of course, there is a need to increase spending on infrastructure and social services. But this should be supported by efforts to raise more revenue, and not by expanding the budget deficit,” Shinohara told reporters.

The official stressed that the government must maintain sound fiscal management to help the country become more attractive to investors, while shielding it from economic problems resulting from a wide budget deficit and huge debt.

In the first semester, the Philippine economy grew by 4 percent, slowing down from the over 8 percent registered in the same period last year.

This development prompted some economists to take the government to task for not spending enough to boost growth.

Shinohara agrees that there is a need for the government to spend more. But any increase in expenditure requirements must be matched by higher revenue collection, he added.

Shinohara said the Bureau of Internal Revenue’s efforts to improve tax collection should continue, and even strengthened, so that the government would have more resources to fund vital expenditure requirements.

The government should spend more on infrastructure, which is one of the key requirements of investors, to generate more employment, increase income levels and reduce poverty, he explained.

Shinohara also said the government should spend more on public education and health services, noting that doing so would help increase the income opportunities of the poor.

According to the IMF official, one of the main problems of the Philippines is income inequality. Although the country has managed to sustain growth over the years—even in 2009 when most economies in the world suffered contractions due to the global financial crisis—the country still faces a significant problem in poverty.

Latest government data on poverty showed that in 2009, 26 percent of the country’s population lived below the poverty line.

Shinohara said the government should spend more on projects that would help reduce poverty without expanding the budget deficit.

He said the government should plug leakages in tax collection, so that the additional revenue from high-income earners could be used to fund infrastructure projects and social services.—Michelle V. Remo