Finance dep’t says manageable fiscal deficit, BoP keys to recovery

THE DEPARTMENT of Finance (DoF) said the balance of payments (BoP) and the budget deficit need to be kept at manageable levels to help the economy recover.

The DoF made the statement in an economic bulletin issued Wednesday, noting the importance of keeping economic fundamentals sound and further signaling its wariness of aggressive stimulus spending being advocated in Congress, which have the potential to significantly raise borrowing.

According to the central bank, the BoP, a measure of outgoing and incoming funds in transactions with the rest of the world, was in deficit by $2.8 billion in the first quarter, against the year-earlier deficit of $68 million.

The current account, which nets out the short-term payments that need to be made against short-term inflows, swung to a $614-million deficit in the quarter from a surplus of $225 million a year earlier, after imports rose by 2.2% year on year while exports dipped by 0.6%.

“This indicates that the economy is back to being a slight net borrower instead of a net lender,” the DoF said.

The Bangko Sentral ng Pilipinas raised its BoP projection for the year to a $7.1-billion surplus from its $6.2-billion estimate previously, on expectations of improving economies worldwide.

The government’s budget deficit rose 0.7% to P566.2 billion in the five months to May as the double-digit surge in revenue outpaced total spending.

The government aims to post 6-7% economic growth this year.

To further support the recovery, it said inflation should also remain within the 2-4% target range of the central bank, allowing the peso to trade at competitive levels.

Headline inflation eased to a six-month low of 4.1% in June, from 4.5% in May. The year-earlier level was 2.5%.

Economic managers expect the peso to trade between P48 and P53 against the dollar this year.

The DoF has said the ongoing vaccination program and relaxation of quarantine restrictions will prop up growth further. — Beatrice M. Laforga