Aggressive spending seen positive for economy — DBS

PLANS announced by the new government are “positive” for the economy, analysts at DBS Group Research said, with planned deficits equivalent to 3% of Gross Domestic Product deemed acceptable as long as they fund further expansion.

President Rodrigo R. Duterte’s economic managers have signaled their intent to spend more aggressively to boost the economy. In particular, Budget Secretary Benjamin E. Diokno said the government will pursue infrastructure spending of 5% of GDP, likely bringing the overall budget deficit to 3% of GDP, compared with the 2% cap observed by the Aquino government.

DBS economist Gundy Cahyadi said that raising the deficit ceiling should not be a cause of alarm, especially if it intended to support further economic growth.

“The only years when the budget deficit was over 3% of GDP were 2009 and 2010, in the aftermath of the great financial crisis. Yet, running a budget deficit of 3% of GDP is not necessarily a problem, given the public debt profile,” according to the DBS report, titled “Philippines: Duterte’s Game Plan.”

“Budget deficit of 3% of GDP is not a concern as long as it is effective in boosting GDP growth.”

In particular, Mr. Cahyadi said the country is well placed to accommodate increased spending, given a lower share of public debt and sustained current account surplus.

The fiscal deficit was just 0.9% in 2015 at P121.7 billion, barely half of the P283.7-billion ceiling.

“Duterte’s game plan is positive for the longer-term growth outlook. But delivery is key. Until policies are implemented, it’s all theory,” Mr. Cahyadi also said in the report published yesterday, noting that he started with a “wise move” in choosing experienced men as members of his economic cluster.

Plans to relax the Constitutional cap on foreign ownership is also “potentially significant” in encouraging more capital inflows, which could unlock more job opportunities for Filipinos.

“There is always room for improvement. We reckon that structural GDP growth could be as high as 8%,” Mr. Cahyadi added.

The Philippine economy grew by 5.9% in 2015, among the fastest in Southeast Asia.

In a separate report, analysts at BMI Research said they expect Philippine GDP to expand by 6% this year and by 5.9% in 2017.

“Domestic resilience should persist, informing our expectations for the Philippine economy to remain on a sound footing despite ongoing external challenges,” the Fitch Ratings unit said in its July 1 country risk report.

BMI Research, however, flagged the risk of “substantial” hot money outflows amid global headwinds, as well as potential spillovers of a growth slowdown in China and Japan, two key trading partners.