Dominguez doubts funding for stimulus packages

Carlos Dominguez III —MALACAÑANG PHOTO

MANILA, Philippines — The stimulus bills aimed at pump-priming the economy with trillions of pesos in government spending would require a supplemental budget for this year, which President Rodrigo Duterte’s chief economic manager on Monday said could not be funded.

Finance Secretary Carlos Dominguez III said legislators would commit an unconstitutional act if they passed the P1.3-trillion Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (Arise) and the P1.5 trillion COVID-19 Unemployment Reduction and Economic Stimulus (Cures).

These stimulus packages would double the projected 2020 budget deficit of P1.613 trillion, now equivalent to 8.4 percent of gross domestic product (GDP).

Governments closely watch their respective budget deficits as these indicate a country’s creditworthiness.

Philippine economic officials have said they can allow a maximum deficit of only 9 percent of GDP this year, so it will remain in the median of the country’s neighbors and other emerging markets’ deficits.

An unmanageable fiscal deficit will put the investment-grade credit rating that the country currently enjoys at risk of a downgrade, and jack up borrowing costs at a time when the government wanted to borrow more to better finance COVID-19 response measures.

“You have also seen other economic stimulus measures being debated in the legislature. We remain cognizant of the constitutional parameters that determine how we can fund various initiatives, well-intentioned as they may be,’’ Dominguez told participants of the virtual Sulong Pilipinas workshop.

Wisdom of charter provision

According to him, the Constitution “specifically requires the certification of excess funds and new revenue sources to support the passage of any supplemental budget.”

“In running a business or a company, we know that borrowings or loans are not revenues. We appreciate the wisdom behind the constitutional provision for in the absence of additional revenues or income, we jeopardize our fiscal sustainability,” he added.

Dominguez later told a press briefing that this requirement was contained in Article VI, Section 25, paragraph 4 of the 1987 Constitution, which states: “A special appropriations bill shall specify the purpose for which it is intended, and shall be supported by funds actually available as certified by the National Treasurer, or to be raised by a corresponding revenue proposed therein.”

While the Bureau of the Treasury is authorized to borrow for the yearly national budget, supplemental budgets cannot be sourced from borrowings as these were not revenues per se, according to National Treasurer Rosalia V. de Leon.

Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua earlier shot down proposals for a supplemental 2020 budget due to weak tax collections amid a recession.

Unsustainable

“Multiple stimulus bills filed by the legislators from both houses [of Congress] include a slew of additional provisions that make the proposals fiscally unsustainable,’’ Dominguez said.

He noted that “the decisions for the provision of credit should not only be coursed through, but be determined and managed solely by, government financial institutions, which possess the expertise on such functions rather than the various executive agencies with different mandates.”

Dominguez said he supported cash-for-work and proposed that this be redirected toward pressing needs related to managing the pandemic, such as the hiring of contact tracers.

He also suggested that wage subsidies be fiscally viable. “Therefore, beneficiaries should be from areas that remain under the enhanced community quarantine and distribution should be done via digital payout technologies.”

Asked if the economic team would seek a veto of the Congress-led proposals when they reach the President’s table, Dominguez replied: “That is a political question. How will it look to the ordinary people when you’re saying, ‘oh, we promised you so much,’ knowing that is not fiscally sustainable? Is that the responsible political message you are sending? I’m not sure.”

Dominguez noted that the Senate had already cut its proposed stimulus package to P140 billion. “So we have to have some reconciliation of the bills before we really can move forward.”

The Department of Finance (DOF) and the National Economic and Development Authority have been pushing for their own stimulus package — the P173-billion Philippine Program for Recovery with Equity and Solidarity (PH-Progreso), equivalent to only 0.9 percent of GDP.

PH-Progreso includes the extension of the Bayanihan law until the end of the year, and passage of Financial Institutions Strategic Transfer and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery bills.

The measures call for capital and spending support for businesses and consumers, respectively, by providing liquidity to banks and firms.

The DOF is also supporting the Create bill, which is aimed at slashing companies’ income tax rate to 25 percent by July while providing flexible fiscal perks to investors.