Proposed 2023 spending plan to support growth amid risks

THE Marcos administration’s economic team assured that their proposed P5.268-trillion spending plan for 2023 will continue to support economic growth, even as they move to reduce the debt incurred amid the coronavirus pandemic and as risks to the outlook remain.

“The multiplier effects of the proposed budget on the economy and on the various sectors, including the social sectors, are quite evident. As reflected in the eight-point agenda, we address there the basic constraints to growth, poverty reduction, and investment,” Socioeconomic Planning Secretary Arsenio M. Balisacan said during the Development Budget Coordination Committee’s (DBCC) briefing for the House Committee on Appropriations on Friday, which kicked off Congress’ deliberations on the proposed 2023 national budget.

“If we succeed in getting those (funds) addressing those areas, investment should be able to revive productivity growth. Agriculture should be able to provide more opportunities in our tourism (and) manufacturing,” Mr. Balisacan said.

During the briefing, lawmakers questioned the P1.6 trillion earmarked for debt servicing under the proposal that includes principal amortization, noting the money could be used to further grow the economy instead.

“What’s only provided in the budget would be the interest payments of P582 billion because the P1 trillion that represents the amortization payments are already covered by previous appropriations,” National Treasurer Rosalia V. de Leon explained.

“This is just financing the earlier expenditures, of which the funding came from obligations — meaning, loans (and) our bond issuances. So, there’s no need to put it under the budget anymore.”

Finance Secretary Benjamin E. Diokno said the amount the government spends on debt servicing, especially for interest payments, has gone down and is expected to decline further as the economy continues to grow.

“Actually, our current situation is much better than before. (Debt servicing) will be in the neighborhood of only 10%, interest payment as a percent of the budget is approximately 11%, and interest payment as a percent of GDP (gross domestic product) has been constant all along around 2.4%,” Mr. Diokno said.

He added that the country still needs to borrow as the government continues to operate on a budget deficit, with the amount it wants to spend outpacing the revenues it collects as a developing economy.

Mr. Diokno said they are looking at a borrowing mix of 75-25 for 2023, in favor of domestic financing to reduce foreign exchange risks.

He also noted that cutting expenditures is not an option as the administration is targeting continued growth to reduce poverty and inequalities as well as improve employment quality, but he acknowledged their fiscal space is limited due to the obligations incurred due to the pandemic.

“Our needs for borrowing will decline significantly because I don’t think we’ll have another pandemic in the near future,” he added. “What is really relevant is debt as a percentage of GDP, the size of the economy, and that has been declining. That’s why I showed that our debt-to-GDP ratio will progressively decline,” Mr. Diokno added.

The debt-to-GDP is estimated to drop to 61.3% by next year from 62.1% in end-second quarter, all the way to 52.5% by 2028.

The government wants to reduce its budget deficit to 6.1% next year from an estimated 7.6% this year, which will then gradually go down to 3% by 2028.

“We would like the economy to grow and to recover. So, if there are additional resources available to us — either through maybe new loans or maybe additional revenues coming from, say, privatization of some corporations — we would be willing to support a supplemental budget… Because if there are ready to implement projects, and we had the money, then better spend it now rather than, say, a year from now,” Mr. Diokno said.

“In preparation of the budget, we consider our fiscal space as provided for by the DBCC and with that, we have a formula to allot or fund each department and in preparing the budget, we take into consideration the utilization and absorptive capacity of the agencies,” Budget Secretary Amenah F. Pangandaman added when asked about budgets of specific agencies, such as the Education department, and whether they can fund more projects.

Asked on the impact of quicker inflation on the government’s spending plans, Bangko Sentral ng Pilipinas (BSP) Felipe M. Medalla said decreased purchasing power and the BSP’s move to hike benchmark interest rates to arrest rising prices are expected to affect growth, but “not enough” to prevent the administration from reaching the goals that serve as the basis of its proposed budget.

“If prices begin to moderate, as forecasted by the BSP, it’s a little bit better for us,” Mr. Medalla said.

“In our view, recovery is underway… Philippine economic growth prospects remain robust and will be sustained in the medium term, providing scope for the BSP to roll back its pandemic-induced interventions,” he added.

He reiterated that the BSP is ready to take the necessary policy actions to bring inflation back within target.

Meanwhile, in the same briefing, Ms. Pangandaman said they will leave the fate of the Procurement Service of the Department of Budget and Management (PS-DBM) in Congress’ hands.

“If we give a chance to PS-DBM, and if we clean the process and the system of procurement in PS-DBM, maybe we can go back to its old glory… We already have programs on how to fix PS-DBM. If you may give us a chance to at least clean PS-DBM, we will highly be happy with that,” she added.

The PS-DBM, primarily tasked to operate a centralized procurement system for common office supplies and equipment for government agencies, was put in the spotlight last year after state auditors flagged irregularities in the purchase of medical supplies in 2020 using emergency funds amid the coronavirus pandemic.