I am not referring to the monetary board’s key interest rate policy. ‘Am talking about the national government’s budget deficit target for this year.
The deficit level stays at 8.5 percent of Gross Domestic Product (GDP) for this year and hopefully go down further to 7.2 percent in 2022 from a blazing 9.6 percent in 2020.
This is despite the contraction of the domestic economy for the fifth consecutive quarters since the declaration of the pandemic with GDP shrinking 4.2 percent during the first three months of 2021.
All things considered, the landscape of the Philippine economy is still on a cliffhanger, but the National Economic Development Authority (NEDA) is seeing some signs of hope.
NEDA believes the economic contraction is trending downwards. It could still be possible that the whole-year GDP growth assumption may be kept at a range of 6.5 to 7.5 percent.
What is more important here is keeping at target the level of budgetary deficit, a significant macro-economic indicator that most of the credit rating agencies are closely monitoring. They are just but ready to punch the downgrade button.
Allowing the deficit to go haywire is costly. It could mean a possible downgrade in the country’s credit worthiness that the government cannot afford. Affordability is actually an understatement here.
Going back to below investment grade status is a no, no! This would jack up foreign borrowing costs of both the public and private sector. Based on the estimate of the Department of Finance, interest expense could go up between P200 billion and P300 billion.
Indeed, going back to the junk bond status is out of the question. It’s damaging to the country’s image. “Definitely, we’re not going back to the garbage,” admitted Finance Undersecretary Gil Beltran who is in charge of the domestic finance group.
Although nothing can compare to the set-up in 2020 during first imposition of the Enhanced Community Quarantine (ECQ) that brought the domestic economy to a stretching halt, the month-and- a-half lockdown this year is a bit more lenient.
Still, it is costing us, the people, money that we earnestly saved. Our financial buffer is dwindling and may soon be running empty. The same holds true for the government coffers.
Guesstimates pegged the two-week lockdown (between March 29 and April 11) imposed in the metropolis and the National Capital Region (NCR), plus four neighboring municipalities shed “one half of one percent” in the GDP growth.
Using this as a baseline, a cost estimate analysis shows the economy could shed 1.5 percent that may eventually affect the second quarter performance.
Talks going round the corridors of the economic managers offices point to the possibility of reducing the GDP assumption by the Development Budget Coordinating Committee (DBCC). “We’re just waiting for NEDA to tell us if the low-end of the GDP target is still possible,” shared my muted source knowledgeable on the DBCC on-goings.
Fine-tuning the macroeconomic targets for the year is highly likely. But the DOF is steadfast on its position to keep the deficit target, leaning on the enactment of three measures – the liberalization of foreign investments, revisions to the Public Service Act and the Retail Trade Liberalization – that could provide the much needed shot-in the arm for the domestic economy to wriggle out of recession.
Amidst the expectation of inflation going up because of supply bottleneck and nominal GDP could still be achievable, there is no need to change the P1.78 trillion budget deficit.Talkback to me at [email protected]