MANILA - The 2021 budget will be enough to revive the economy, government officials said on Thursday despite projecting the worst full-year recession since World War 2.
This was also despite calls for a bigger stimulus package from independent economists and business leaders.
The cabinet-level Development Budget Coordination Committee (DBCC) forecast that the Philippines’ gross domestic product will shrink between 8.5 percent to 9.5 percent for the whole of 2020.
This would be a deeper slump than the -7 percent growth posted in 1984, as well as the worst contraction since 1947, which is the earliest year that the state statistics bureau still has economic records on.
Despite this, the DBCC said the government’s spending plan in the P4.5 trillion budget, is enough stimulus, alongside the slow and safe reopening of the economy.
“The economy is just waiting for this fear factor to be removed, for people to have confidence they won’t get sick. Once you remove that this economy, believe me, is going to boom,” said Finance Secretary Carlos Dominguez III.
Tax reductions for private companies under the Corporate Recovery and Tax Incentives for Enterprises Act will also help, Dominguez added. He also played down suggestions that bigger stimulus packages result in faster recovery.
“There has been evidence that stimulus spending, if it is not spent right, does not help the GDP growth,” said Dominguez.
“For instance. There is one ASEAN country that spent in excess of 20 percent of GDP as stimulus, yet their GDP dropped 19 percent. A European company did the same and their GDP dropped 23 percent. There is no direct relationship between stimulus and GDP growth,” Dominguez added.
The Finance chief thumbed down proposals for “Bayanihan 3” stimulus package saying he was concerned over the budget deficit.
Budget Secretary Wendel Avisado said he is also optimistic about the country’s growth prospects for next year, with the planned spending package.
"Our deficit program is designed to balance the requirement of supporting economic recovery while keeping our debt-to-GDP ratio beneath a sustainable threshold. We will not abandon the prudent fiscal management set by President Duterte when he assumed office in 2016 and put us in a good fiscal position ahead of the pandemic,” Avisado said.
He added that they see GDP growth bouncing back to 6.5 percent to 7.5 percent in 2021 and 8 to 10 percent in 2022.
Bangko Sentral Governor Benjamin Diokno meanwhile noted that the Philippines’ fiscal response is low relative to that of other ASEAN nations. The fiscal stimulus amounts to only 2.3 percent of GDP in terms of additional spending and foregone revenues, and 1.1 percent in terms of equity, loans, and guarantees.
The BSP has already cut interest rates to historic lows this year, in an attempt to spur lending and stimulate the economy. But lending has remained weak, as banks imposed more stringent lending requirements to check the growth of bad loans in their portfolios.
Business leaders earlier warned that the 2021 stimulus package was not enough, and that was needed was “a bazooka, not a pistol.”
An independent economist also described the Philippines’ stimulus package as “the stingiest” in the region.
- Report from Warren de Guzman, ABS-CBN News