The Philippine fiscal adjustment

According to the Institute for Development and Econometric Analysis, Inc. (IDEA) latest Economic Trends, a regular publication produced by IDEA, Inc. it reported that “according to the International Monetary Fund, the Philippines is in league with few economies that were observed to be fairly successful in easing fiscal debt and deficit so far. In the two years to 2011, the National Government (NG) was a major source of dissaving in the Philippines. In 2009, the Congress passed a stimulus package amounting to Php330 billion to combat the slowing effect to economic growth of the crisis. The package covered spending to increase public sector employment, boost agriculture sector, strengthen social protection, and build up capital stock by financing infrastructure projects. On account of the stimulus package, as well the robust overseas Filipino remittances, the economy resisted contraction and grew at the modest rate of 1.1 percent (using 1985 prices).

Per same published report, it reported that in 2010, a follow-through stimulus spending amounting to Php100 billion was passed by the Congress to ensure recovery as well as further stimulate the economy. This helped economic activities to surge, resulting in a 7.3-percent economic growth (using 1985 prices). Although these incredible spending raised the NG outstanding debt for two consecutive peaks after 2008’s Php4,221 billion, growths in the outstanding debt in 2009 and 2010 were tamer at 4.2 percent and 7.3 percent, respectively, compared to 2008’s 13.7 percent. Moreover, the better-than-expected gross domestic product (GDP) growth rate and net-inflow of income helped moderate the debt-to-GDP and debt-to-gross national income (GNI).

Likewise according to IDEA researchers, the Department of Finance earlier desired to improve the debt-to-GDP to 55.7 percent in 2009 and to 53.4 percent in 2010. This was shelved in light of the pending crisis at that time. The data, however, remained favorable. The actual debt-to-GDP ratio was at 54.8 percent in 2009 and 52.4 percent in 2010. The contraction in the debt-to-GDP stands for faster growth in GDP than the debt through lowering of the budget deficit. Data for the first three quarters of 2011 demonstrated that the ratio is drawing near the 50.0-percent level. The Finance department has set the debt-to-GDP ratio ceiling at 55.5 percent for 2011 although the trend in budget deficit suggests that this ceiling would hardly be breached.

Lastly, for the general public, the tamed buildup of debt hints at lower costs through lower debt service or interest payments. Movements in the debt service-to-GDP ratio have been rather flat at 7.8 percent in the three years to 2011, implying that the resource needs to meet debt servicing has not increased. As of the third quarter of 2011, the ratio only hit 6.3 percent. Overall, the trend in its debt gives the government room to run deficits when macroeconomic imbalances threaten the economy once more. While debt growth is under control, the fragile state of revenue inflows poses a problem since interest payments are growing faster than that of NG revenues, according to IDEA.

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