The buzz and market excitement in the marketplace is being kept up by the price of rice at ₱20 per kilo, which vulnerable sectors in particular areas can avail of right from the start.

It’s no longer just a campaign promise but is now being enforced, with the President brushing aside criticisms, which described the program as just a “public relations” drive to improve the administration’s image. Its viability and sustainability, and the initiative itself, are now being put to the test.

Certainly, the optics are positive – a welcome and cost-saving development for senior citizens, solo parents, PWDs, and 4Ps beneficiaries. Authorities are even exploring the possibility of extending this initiative to low and lower-middle-income families.

Looking at the bigger picture, this initiative presents both a macroeconomic benefit and a financial risk. Yes, Virginia, a key macroeconomic benefit of this program is its potential to significantly influence the inflation path.

Considering the domestic environment, and setting aside offshore geopolitical issues, should the program prove sustainable as the President has indicated, inflation could be benign in the coming months, given that rice is a major component of the basket of goods.

In the overall inflation calculation, the specific recipients of the lower-priced rice are not a factor. Therefore, a lower price of rice has a significant impact on inflation trends.

Consequently, lower inflation could allow the Bangko Sentral ng Pilipinas (BSP) to further reduce its key policy interest rates, even as the US Federal Reserve opts to hold rates steady amid growing concerns about slowing economic growth.

However, on the other side, implementing this program will mean increased government expenditure. It's a form of subsidy, and what my lion’s ear heard was that it was not included in the current year's budgetary allocation.

This poses a risk – higher unprogrammed spending that could push the national government’s budget deficit beyond its target of ₱1.5 trillion for the year, which is approximately 5.3 percent of the gross domestic product.

Based on the latest fiscal balance, the national government's spending exceeded its earnings in the first quarter of the year, with public spending at ₱1.477 trillion against revenues of ₱998.2 billion.

Conversely, should the BSP continue to adopt quantitative monetary easing, this would mean lower borrowing costs for the national government.

A careful balancing act is necessary here, particularly in light of the International Monetary Fund's recent Article IV review of the Philippines, which emphasized the government's need to adhere to its medium-term fiscal consolidation path.

It remains unclear whether this supplemental budget or subsidy for the National Food Authority (NFA), which is in charge of this initiative, is included in the approved 2025 budgetary allocation.

The NFA is one of the 14 closely monitored government-owned and controlled corporations. Additional subsidies to the NFA will also increase the Consolidated Public Sector Deficit and could seriously impact the government's fiscal consolidation efforts.

As IMF Mission Chief Elif Arbati Saxegaard stated, “The medium-term fiscal consolidation remains appropriate and should be supported by a sustainable plan to raise tax revenues and implement expenditure reforms to ensure that deficit targets are met and to create more space for priority spending.”

We instinctively tend to view deficits as negative and surpluses as positive. In this context, palay and rice subsidies could be considered priority spending due to their inclusive effect on marginalized sectors, but they could also increase the deficit.

Therefore, an additional revenue stream is necessary to avoid a negative impact on the budget deficit target.

Looking ahead, a comprehensive approach – a fundamental program addressing both productivity and the welfare of farmers – is essential to achieve food security.

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