GlobalSource, a New York-based think tank, has agreed with the government, saying that this year might not be the most opportune time for wiping out the deficit.
“This year may not be the most opportune time for balancing the budget with an expected global slump and rising inflation combining to slow growth,” GlobalSource said in a recent report on the Philippines.
In the report co-authored by former Finance Undersecretary Romeo Bernardo, GlobalSource said that spending would be affected and revenues may be placed at risk now because of skyrocketing food and fuel prices.
Last week, the government announced that it has scrapped its goal of balancing the budget this year and is instead preparing to incur a deficit of P75 billion as it needs to boost economic spending.
The government also decided to cut its economic growth target for this year to a range of 5.7 percent to 6.5 percent from 6.3 percent to seven percent due to skyrocketing oil and food prices.
The balanced budget goal, once at the center of the Arroyo administration’s fiscal program, has been postponed to 2010 or back to the original schedule.
GlobalSource predicts that the government would post a deficit of around P80 billion or P5 billion more than the P75-billion deficit expected by fiscal authorities.
“Under the current economic scenario, the government can conceivably log a primary deficit of around P80 billion (1.1 percent of GDP),” GlobalSource said.
The think-tank pointed out several risks to the economy such as subsidy leakages and distorted fiscal incentives.
“From a long-term perspective, better use of finances would entail spending with an eye to future development such as on infrastructure, health and education investments, plus other outlays that can boost domestic efficiency,” GlobalSource said in its report.
Finance Secretary Margarito Teves has said that the government intends to boost spending on infrastructure and social services which is why it would be difficult to arrive at a balanced budget this year.