Positive impact of rise in gov’t spending on GDP cited

Positive impact of rise in gov’t spending on GDP cited

MANILA – The improvement of government spending will greatly benefit domestic growth but further reopening the economy can boost tax revenue collections which could help narrow the country’s budget deficit, according to economists.

The Bureau of the Treasury (BTr) on Monday reported the 17.5-percent year-on-year jump in government expenditures last September to PHP412.4 billion, higher than the 8.96-percent rise in revenues to PHP231.4 billion.

This resulted in the 30.6-percent jump in the budget gap to PHP180.9 billion, bringing the first nine month’s budget deficit to PHP1.139 billion, lower than the PHP1.425-trillion programmed for the period.

As of end-September this year, government revenues totaled to PHP2.237 trillion, 4.71 percent higher than the PHP2.136-trillion program for the period, while expenditures amounted to PHP3.376 trillion, 5.22 percent lower than the PHP3.562-trillion program.

Attributing the year-on-year jump of both the expenditures and revenues last September to base effects, ING Bank Manila senior economist Nicholas Mapa said rising revenues shows that economic activity has improved compared to the same period last year.

“Meanwhile, government spending has sustained its momentum, which will likely continue to close out the year. This will be a positive in terms of GDP (gross domestic product) as government spending will need to compensate for consumption and capital formation, which may yet to revert to pre covid pace of expansion,” he said in a note.

He, however, said that the widening deficit suggests that the overall debt of the country “continues to pile on.”

“Currently, the debt-to-GDP ratio is at roughly 63 percent, beyond the threshold that credit ratings agencies may view as sustainable,” he added, referring to the 60-percent level that is considered to be sustainable.

Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort forecasts further rise in budget gap in the coming months due in part to the need to pump-prime the economy and the need to accelerate infrastructure project implementation ahead of the May 2022 national polls.

He cited the decision of the national government to implement the Alert Level system in the National Capital Region (NCR) as a granular lockdown method, which has been adopted by other areas, to further reopen the economy.

Ricafort said this move could help increase government tax revenue collections, reduce risks of lockdowns that entail more government spending on various coronavirus disease 2019 (Covid-19) programs.

This in turn could help narrow the country’s budget deficit and could also reduce the need for additional government borrowings and debt, he added.

“An important development being anticipated for the country’s fiscal and economic performance would be the timely approval of the 2022 national budget by lawmakers before the Christmas holidays/break to avert the risk of a re-enacted budget for next year, especially for funding various Covid-19 programs and to continue help pump-prime/stimulate the economy through increased infrastructure spending and other government projects as important pillars of the country’s economic recovery program for 2022,” he added. (PNA)

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