THE International Monetary Fund (IMF) has recommended that the Philippines reduce its budget deficit program for 2018 and 2019 to ease the burden of further tightening monetary policy to address the elevated inflation rate.
In a statement, the Department of Finance said the IMF recommended that the Philippines bring down its budget deficit ceiling for 2018 and 2019 to 2.4 percent of the gross domestic product (GDP) from the current target of 3.0 percent of GDP for 2018 and 3.2 percent of GDP in 2019.
Finance Secretary Carlos Dominguez III described the IMF recommendation as a “tough advice” as he warned that it will impact on the government’s Build Build Build program.
“Given deliberate improvements in our process, projects are in full steam to realize benefits envisioned in a timely manner. We do acknowledge that adjustments may be necessary to adequately respond to the changing macroeconomic landscape both internal and external,” Dominguez said.
He said the recommendation will be discussed by the inter-agency Development Budget Coordination Committee (DBCC), which recently raised the budget deficit ceiling along with other key economic assumptions.
Dominguez, along with Socioeconomic Planning Secretary Ernesto Pernia and Budget Secretary Benjamin Diokno, noted that the budget deficit ceiling for this year was revised to take into account the Build Build Build program.
“The program is meant to address the country’s long standing and yawning infrastructure gap, which has dragged the country’s competitiveness for decades and which the IMF itself had pushed the Philippines to address,” the DOF statement read.
Diokno, for his part, said they recognize the merit given by the IMF, but cautioned against the implication of abandoning certain infrastructure projects.
“We will subject the IMF Staff proposal to a thorough review. Reducing the budget deficit program to 2.4 percent of GDP is feasible. However, the implication of abandoning some of our big-ticket infrastructure projects is something we are not comfortable with. We are already gaining significant progress in our aim to accelerate infrastructure development to boost the country’s competitiveness and improve the quality of life of Filipinos. We do not intend to slide back,” Diokno said.
Philippine economic managers said the elevated inflation this year is caused by factors that are one-off and transitory. These include rise in global oil prices, the imposition of excise tax on sugar sweetened beverages and higher excise tax on tobacco, as well as supply-related problems for rice.
The IMF team described the Philippine economy as “performing well,” forecasting continued 6.7 percent real GDP growth and below-4 percent inflation in 2019 while citing the country’s “prudent policies and critical reforms.”
The team visited Manila and Bohol from July 11 to July 25.
Dr. Luis E. Breuer, the team leader, said: “The Philippines has been one of the region’s strong economic performers over the past years, reaping the fruits of prudent policies and critical reforms. The team welcomes the authorities’ strategy of maintaining policy continuity, while adapting to emerging challenges, and taking advantage of the strong economy to implement reforms to improve inclusive growth and job creation. This strategy has served the Philippines well.” (With PR)