Good or bad news in the fiscal front?By Fernando Fajardo |Cebu Daily News
Government report says that a surplus of P31.024 billion was posted last month, trimming down year-to-date deficit to P2.885 billion. Indeed, revenues surged by more than a tenth in April and by 11.4 percent for the first four months of the year, while disbursements recorded an uptick of 9.1 percent and 12.1 percent, respectively.
For April alone, the report says that revenues stood at P153.268 billion, while expenditures amounted to P122.244 billion. Overall from January to April, the government already collected P514.242 billion in revenues. In the same four-month period, it only spent P517.127 billion in expenditures, thus leaving a deficit of just P2.885 billion. Is this good news?
It could be bad actually. The reason is that as a matter of policy the government fiscal position should be adjusted or aligned with the need of the economy. If the economy is down or slowing down, the government is usually needed to stimulate the economy. This is done by having the government spend more than it collects to maintain a high level of local demand. In doing so, it ends up with a deficit. The weaker is the economy, the more it overspends and registers a large deficit. When the economy is doing well, government stimulation is no longer necessary and the government can therefor sit back and relax. It can afford to spend less than it collects and ends up with surplus. The stronger is the economy, the more it collects and registers a large surplus and thus the way to pay our huge government debt finally.
At this time, though, we know that the global economy is still in a precarious state, having not recovered fast enough in the last two years after the 2008-2009 Great Recession. Presently, the U.S. economy, the largest in the world, is still struggling with its inability to bring down its high unemployment that reached more than 9 percent at the height of the global recession while the Eurozone is in the brink of another recession. When the global economy slows or goes back to a recession, the country’s exports also suffers thus contributing to the overall slowing of the national economy also. But the worst part is that because most of our exports still go to the developed countries in the world like the US, Europe and Japan which underperform the global economy, we also suffer more cuts in our exports and thus hurting us more, hence the need to compensate for this through more government expenditures to increase local demand.
The other problem is that when global economic growth is slow, investment also slows in many countries in the world, including the Philippines. Lower investments also means lower demand, and thus causing the economy to slow down. Again, this is another reason for the government to spend more to increase local demand.
Thus, it really is not necessarily always good to see our fiscal deficit to go lower or turn positive as reported recently by the government. It depends on the actual condition of the economy. Presently, the Philippine economy is still in a precarious state because of the poor condition of the global economy, more particularly in the developed part of the world to where we send most of our exports and from where we get most of our foreign investments.
Let us remember also that to create more jobs and wipe out much of our poverty, the new Aquino administration aimed to grow the economy at a sustained rate of 7 percent or higher until the end of its six-year term. Unfortunately, from more than 7 percent in 2010 (the Aquino government started in the second half of that year), the Philippine economy grew only by 3.7 last year due mainly to government underspending and falling exports. If we allow the government to underspend again this year along with the continued trouble that we have with our exports, it will not be a surprise if we find the country growing again at least than four percent this year. When this happens, goodbye poverty reduction and goodbye inclusive growth, which to many Filipinos also means goodbye Philippines as they move on to other countries in search of jobs.
Of course, the government had been assuring us that despite the slow global economic recovery, the Philippine economy could still grow by 5 to 6 percent or even higher this year. In fact, no less than Dr. Joseph Yap, the head of the government think-thank—the Philippine Institute of Development Studies—said in a forum here in Cebu a couple of weeks ago that with government spending on track, lower inflation, agriculture sector recovering and manufacturing and services receiving a boost from public construction, the Philippine economy, despite global economic slowdown, could achieve a 5.6 percent growth this year.
I, too, believe that the Philippines could grow between 5 to 6 percent this year but not so when the government fails to stimulate the economy when the economy or when the private sector part of the economy, specifically, is in hibernation state.
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