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DESPITE imminent calls from various departments and stakeholders, Finance Secretary Carlos Domínguez III believes that injecting more fiscal stimulus into the economy is not the answer to boost its growth prospects.
At the DBCC virtual press conference on Thursday night, Dominguez said that the Philippine economy does not need more fiscal stimulus as the country’s foundations, measured by its productive capacity, remain intact.
“There is an Asean country that spent more than 30 percent of its GDP [gross domestic product] and yet its GDP fell by almost 19 percent. That’s the same for another European country that spent 23 percent of its GDP and its GDP fell 21 percent, ”said Domínguez.
“So there is no direct relationship between the stimulus and GDP growth,” he added.
This, despite calls from the private sector and other government officials to boost fiscal spending to improve the effectiveness of other supportive government initiatives.
Among the most recent was the governor of Bangko Sentral ng Pilipinas (BSP), who, on the same day, said that “sustained and specific fiscal interventions at this juncture are crucial to reactivate domestic demand”, since the effectiveness of the Monetary policy is weakened by the reluctance of the banks. lending and the reluctance of borrowers to borrow.
However, the country’s top financial manager said Thursday that the country should stick to its original strategy of managing its fiscal deficit.
“We have to see what our fiscal deficit will be. Our original strategy was to fall amid the fiscal deficits of our rating peers around the world as well as our ASEAN neighbors. And so far, with an estimated fiscal deficit of 7.6 percent, we are going to land exactly in the middle of the package, ”said Domínguez.
The finance chief said that since the Philippines’ productive capacity has not been damaged, the root of the problem is not a lack of fiscal stimulus, but people’s fear of infection.
“When you look at what is really holding back our economy at this particular time, it seems to me to be people’s lack of confidence in spending. So instead of a stimulus package that is a giveaway package, it’s actually not going to work as well as if we did the budget stimulus, as well as giving people the confidence that they won’t get sick or die from Covid. Dominguez. said.
“When you restrict the movements of the young people who are 40 percent of our population, you are reducing the demand. But the productive capacity, the educated people, the infrastructure that we are continually building, is there ”, he added.
“So, the economy is waiting for this fear factor to be eliminated for people who are confident that they will not get sick, and this economy, believe me, is going to grow,” he also said.
Unspent funds
Another basis for why the national government is cold in supporting another stimulus bill, according to the DOF: The government still has unspent funds that could be spent for next year.
Domínguez said that the government still had P213 billion unspent from the national budget and
Bayanihan 2.
Domínguez also said that the country’s deficit / GDP ratio, which is 8.9 percent, will leave the government in a “very, very tight fiscal situation.”
“At this time we cannot say that we support another Bayanihan Bill 3. However, we are planning to spend what has not been spent for this year on both the GAA and the budget and the Bayanihan 2. So if I don’t I’m wrong, it’s an additional P213 billion, so it could be the stimulus for next year. ”Domínguez said.
With both houses of Congress passing the Corporate Recovery and Tax Incentives for Companies (CREATE) bill, the economy will receive another “stimulus package,” he added.
Micro, small and medium-sized businesses that earn less than P5 million a year will see their corporate income tax reduced from 30 percent to 20 percent.
For companies making more than P5 million, the CIT will also be reduced to 25 percent from the current 30 percent.
“That bill includes a great stimulus by reducing taxes for both large and small,” Domínguez said. “That in itself is also a stimulus package.”
Vaccines vs fear
To dispel the fear factor, Domínguez said the government is spending at least P73 billion to buy Covid-19 vaccines.
He said this is only a preliminary estimate given that the government does not yet know which vaccine will be approved by the country’s Food and Drug Administration.
However, the P73 billion was derived from an estimate of P1,200 per person for two doses of the vaccine. With the amount, the government could buy vaccines for 60 million.
