Fiscal risks noted from campaign promises

INVESTORS can rest assured that economic reforms and gains under the current administration “are irreversible,” ING Bank N.V. Manila said in a note yesterday, although it cautioned that certain populist promises made recently by presidential contenders bear watching due to fiscal risks they entail.

“Fiscal spending is expected to remain strong in 2016,” ING Bank senior economist Jose Mario I. Cuyegkeng said in the note that was e-mailed to journalists.

“Current government, the market and the business sector believe that the economic reforms and gains during this administration are irreversible. We believe that the recent reforms and gains would provide a momentum to the economy in the next 12-18 months.”

In an earlier market comment, the analyst said he expected the economy to expand by an average of 6.5% this semester as electionrelated spending added to sustained improvement in public spending as well as continued robust household consumption that is widely estimated to contribute up to 70% to gross domestic product (GDP).

Full-year growth may log at 6.2%, Mr. Cuyegkeng has said, faster than last year’s 5.8% average though still below the government’s already-trimmed 6.8-7.8% target for 2016.

SQUANDERING

While the upcoming May 9 national elections are expected to be fairly “credible” and “peaceful,” investors eyes will eventually turn to policy moves of the next president who assumes office at noontime of June 30.

“Squandering the fiscal gains is possible,” Mr. Cuyegkeng cautioned.

“We mentioned the fiscal challenges that the new administration could face. There are a number of promises that have significant fiscal ramifications,” Mr. Cuyegkeng noted.

“We estimate that the impact on the fiscal position costs an equivalent to 3.4% of GDP ( including the claw-back higher consumption),” the analyst said.

“If implemented (and more so if done simultaneously) then fiscal situation could bring us back to the dire fiscal conditions early last decade when the government was posting a chronic deficit of around 4% of GDP and primary balance [which excludes interest payments] veers back to a deficit.”

The government’s budget deficit last year was equivalent to 0.9% of GDP, well below the 2% program set by economic managers for 2015.

The presidency is currently a five-way race among former Interior secretary Manuel A. Roxas II, Vice-President Jejomar C. Binay, Senators Grace Poe and Miriam Defensor- Santiago, and Davao City Mayor Rodrigo R. Duterte.

Campaign promises given by candidates include lower income taxes, higher infrastructure spending and a wider coverage of the government’s conditional cash transfer program for the poorest families. Among others, Mr. Binay has committed to exempt workers earning up to P30,000 a month from income taxes, while Ms. Poe seeks to raise annual infrastructure budget to 7% of GDP from an official 5% target this year.

Looking ahead, Mr. Cuyegkeng cited the need for the next president to hire “credible” advisers to help him decide on economic policies and issues.

“Risk to this favorable fiscal bond fundamental in 2017 and beyond would depend on the next president,” he said.

“Credible economic advisers of the candidates… are a source of cautious optimism. But at the end of the day, the president would make the final call and an appreciation of economic and business nuances would be critical.” —