Higher than ceiling budget deficit ‘manageable’ – DOF

Published February 22, 2019, 12:00 AM

by manilabulletin_admin

By Chino S. Leyco

The Department of Finance (DOF) assured that the national government’s budget deficit remains manageable despite the above programmed spending last year that resulted in slightly higher than expected fiscal gap ratio.

 Finance Secretary Carlos G. Dominguez III (Bloomberg photo)
Finance Secretary Carlos G. Dominguez III (Bloomberg photo)

Finance Secretary Carlos G. Dominguez III is not concerned over the 3.2 percent budget deficit to gross domestic product (GDP) ratio incurred in 2018, citing the slightly above the ceiling financing gap was still “manageable.”

The Duterte administration had set a 3.0 percent budget deficit-to-GDP ratio cap, or P523.7 billion, for last year, but the national government ended with a nominal P558.3-billion fiscal gap due to higher public spending.

The Bureau of the Treasury reported yesterday that the government surpassed its spending program after the Duterte administration “ramped-up” investments in infrastructure, social protection as well as increased disbursements in personal services (PS).

According to the treasury, PS jumped last year following the implementation of salary increases for civilian and military, including uniformed personnel.

The treasury also added that the government hired additional teachers for the Department of Education last year, which also boosted the government’s PSA expenses.

In a statement, Budget Secretary Benjamin E. Diokno also shrugged off the accelerated spending, noting the government recorded an “impressive” infrastructure disbursements last year, which is now seen to be twice the fiscal deficit-to-GDP ritio.

According to Diokno, the budget deficit — defined as the difference of national government revenues and expenditures — has averaged 2.7 percent of GDP in the first two years of the Duterte administration, but its infrastructure outlays are projected to hit 6.3 percent.

“This means that the country’s borrowings are financing worthwhile infrastructure investments that the Filipino people can look forward to enjoying,” Diokno said. “The fiscal numbers reflect our seriousness in closing the country’s infrastructure gap.”

“Filipinos may really look forward to better roads, comfortable mass transport systems like trains and modern public utility vehicles (PUV), among other infrastructure initiatives. The data support the eye test, with so many construction projects going on around the country,” he added.

Based on historical data provided by the Department of Budget and Management (DBM), Diokno noted that infrastructure spending as percent of GDP was not a priority of previous administrations.

The DBM cited that the ratio hit 3.0 percent under the Aquino administration, 1.6 percent during the Arroyo government, 1.8 percent under former President Joseph Estrada’s term, and 1.7 percent under President Fidel Ramos’ leadership.

The Duterte administration has turned the ratio around by investing an estimated 6.3 percent of GDP for public infrastructure in 2017 and 2018, the budget chief said.

“These numbers are consistent with our desire to spend as much as 7.0 percent of GDP for public infrastructure by 2022,” Diokno said.

“The historical underinvestment in infrastructure was exacerbated by higher fiscal deficits for two decades. This suggests that for many years, government revenues were not even enough to cover current expenses. As a prudent fiscal rule, infrastructure spending-to-GDP ratio should exceed the deficit-to-GDP ratio,” DBM said.

“We are spending above 6.0 percent of GDP on public infrastructure, while keeping the deficit-to-GDP ratio at less than 3.0 percent. No administration has done this before,” Diokno said.

In 2019, the Duterte administration has a deficit ceiling of 3.2 percent of GDP, and expected to go back to 3.0 percent of GDP from 2020 to 2022.

Meanwhile, infrastructure spending will approach 7.0 percent of GDP in 2022 in line with the Build Build Build program. Higher government spending and upgrading of infrastructure will enhance the Philippine economy’s competitiveness.