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MANILA – The government of President Rodrigo Duterte plans to temporarily break his own budget deficit ceiling next year to accelerate infrastructure spending and accelerate economic growth.
The decision comes in a context of sharp liquidation of the market and inflation. Market participants will carefully monitor how the president's economic team is trying to stimulate growth while maintaining fiscal discipline.
Carlos Dominguez, Secretary of Finance, met on Monday with the heads of the Department of Budget and Socio-Economic Planning. capped at 3.2% of gross domestic product by 2019 compared to the initial 3%. The ceiling is expected to return to 3% by 2020 and remain at this level until 2022.
Dominguez told reporters that raising the ceiling would allow the government to increase its spending on infrastructure and social services . The additional spending will help achieve GDP growth of 7% to 8%, which is targeted each year until 2022.
The growth target remained unchanged at Monday's meeting, but the 2018 inflation forecast was raised to 4% – 4.5% from 2% -4%, which is also the official target of the central bank. The economic team expects inflation to set at 2% -4% from next year until 2022.
The Secretary to the Finance suggested that the increase in the deficit would not hurt the Philippines' credit prospects, thanks to the rise in the spending plan comes after two interest rate increases by the central bank of the Philippines.
"To compensate for the moderation of possible growth resulting from this monetary tightening, the government is increasing spending," said Angelo Taningco, an economist. Duterte, in his third year in office on June 30, presided over 6 per cent economic growth in the first two years of his six-year term. Its goal is to spend approximately $ 180 billion on infrastructure to achieve the country's growth goal.
The market, however, was not very optimistic recently
The Composite Index of the Philippine Stock Exchange ended the first half of this year as the worst performer among the major stock market indexes. ;South East Asia. Market shares are partly due to rising interest rates in the United States. In the Philippines, the liquidation of shares is also exacerbated by a weak peso, which is trading at its lowest level in 12 years, according to Luis Limlingan, an analyst in Regina.
The currency situation is due to a growing trade deficit, mainly caused by the massive importation of equipment goods for the development of infrastructure, said the authorities.
Dominguez also downplayed concerns. stock prices and the depreciating peso are signs of a weak economy. "If we ask, we're fine," he said.
Despite the decline in stock markets, the Philippine economy remains one of Asia's most dynamic.
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