Yawning budget hole contemplated

Benjamin E. Diokno, who has been handpicked by president-elect Rodrigo R. Duterte to lead the Department of Budget and Management (DBM), said the new administration may peg the country's budget gap at 3% of gross domestic product (GDP) which, if realized, would be the widest since 2010.

The incoming Budget chief also contemplates tweaks to the 2016 and 2017 national budget, which assumed a deficit of 2% of GDP, the ceiling set all throughout President Benigno S.C. Aquino III's six-year term.

"A deficit-to-GDP ratio of 3% is still manageable especially if it will be devoted to public infrastructure," Mr. Diokno said in a mobile phone message to BusinessWorld.

Mr. Diokno, who previously served as Budget secretary of former President Joseph E. Estrada, had been a vocal critic of the Aquino administration's prudent fiscal policy.

But it's that same fiscal prudence -- alongside a monetary policy that supported economic growth -- that merited the Philippines 24 positive credit rating actions during Mr. Aquino's six-year term, earning minimum investment grade status from major debt watchers Moody's Investors Service, Fitch Ratings, and S&P Global Ratings.

The country's budget gap stood at P121.7 billion or roughly 0.9% of GDP in 2015, barely half of the P283.7-billion ceiling. In 2010, fiscal deficit logged P314.458 billion at 3.5% of GDP.

Mr. Diokno yesterday said a wider deficit would be justifiable if the government allocates more funds for much-needed infrastructure development.

NO RATINGS IMPACT

Asked whether a yawning budget gap would impact the country's investment grade rating, Mr. Diokno said: "Credit raters are more concerned with the borrower's ability to service its debt."

"With a hefty GIR (gross international reserves) and steady inflow of OFW (overseas Filipino workers') remittances, there is no doubt that the Philippine government will be able to meet its debt obligation."

The country's reserves stood at $83.467 billion at end-April, enough to cover 5.5 times the country's short-term offshore debt.

Meanwhile, cash remittances totalled $6.558 billion for the first quarter, against a $26.3-billion full year target.

International credit raters assess an economy to gauge chances of defaulting on its foreign loans.

A slip in its credit rating could mean higher borrowing costs for the country to finance local development projects.

In a television interview, Mr. Diokno also said that both the 2016 the 2017 national budgets may be adjusted to accommodate the spending priorities of the new administration.

"We will do a quick and dirty assessment on what has and has not been implemented... We'll see which may be augmented consistent with programs of the Duterte administration," Mr. Diokno said, referring to the camp's eight-point economic agenda.

Mr. Duterte's transition team sketched out an eight-point agenda shortly after his victory, saying the incoming president would continue and maintain current economic policy with some reforms for tax collection agencies, raise infrastructure spending to account for 5% of GDP, relax Constitutional limits on foreign ownership to attract more offshore investments, push for higher farm output, ensure security of land tenure, strengthen the education system, adjust the tax system, and expand the conditional cash transfer program targeting poor families.

AFTER SONA

The government has allocated P3.002 trillion for new and continuing programs this year. Total budget releases stood at P2.452 trillion, or 81.7%, of the P3.002-trillion sum, according to the DBM.

For next year, outgoing Budget secretary Florencio B. Abad is finalizing a P3.35-trillion spending plan, the last to be prepared by the Aquino administration, to be turned over to the new government by end-June.

That budget also caps the deficit at 2% of GDP. However, Mr. Abad has admitted that the new economic managers may opt to change the allocations as well as the budget level for the coming year.

"We still can't control the 2017 budget. It's very important that we will have the stamp of Duterte's program on the 2017 budget," Mr. Diokno said.

Mr. Duterte's economic managers will scrutinize and possibly adjust the spending plan within the one-month window accorded to them after the President delivers his first State of the Nation Address (SONA) on July 25.

"The final, final deadline for the submission of the 2017 budget is on Aug. 23, 2016, but we intend to submit a week before that," Mr. Diokno added.

Asked whether the new Cabinet is keen on adopting the current government's economic targets and assumptions, Mr. Diokno said: "It's a bit premature."

"Sonny [Dominguez] (Finance), Ernie [Pernia] (National Economic and Development Authority) and I will have to meet as a team to review Aquino's first two quarters... Offhand, I think the 6.8 to 7.8% GDP growth is on the high side, despite the 6.9% GDP growth in Q1."

The interagency Development Budget Coordination Committee last set the country's macroeconomic targets on Feb. 15, which assigned a 6.8-7.8% growth goal for this year and 6.6-7.6% for 2017.

Source: BNworld Online