‘Widen deficit to allow bigger infra spending’


    The Philippine economy may be facing downside risk to growth next year from rising interest rates, inadequate infrastructure and geopolitical tensions, but there are steps the government can take to mitigate such risk, a visiting International Monetary Fund (IMF) official said.

    One of the policy recommendations of the IMF to the Philippine government is to pursue higher government spending on infrastructure and allow the widening of the budget deficit to a maximum of 2 percent of gross domestic product (GDP) to enhance infrastructure investment, said IMF director for Asia and Pacific Department Changyong Rhee, who is in Manila for a three-day visit.

    . In a press briefing on Wednesday, Rhee said infrastructure is a key to maintaining the country’s growth momentum for the long term and expediting such spending will be a very important task for the economic.

    Still stellar
    The IMF still sees the Philippine economy as one of the stellar performers in the Association of Southeast Asian Nations (Asean), saying it is still well on track to achieving the Fund’s previous 6.2 percent growth forecast for this year.

    Rhee said that over the last five years, the economy has been growing well over 5 percent annually, which he said is a very rare case in many other countries. He cited the many structural reforms implemented in this country on the governance and fiscal side.

    “When you look at the overall performance of the economy in the last decade, the most important achievement is you had debt-to-GDP [gross domestic product]ratio that was well above 70 percent to 80 percent but now, it is down to 40 percent. And that is a great achievement,” he said.

    Looking ahead, Rhee said the IMF’s 6.5 percent forecast for 2015 will be reviewed based on the development in the global economy.

    “Considering some uncertainties in the global economy, especially the possibility of increased interest rates in the United States and the increasing geopolitical tension in the global economy, they can [create]downside risk, so we have to see how we adjust these new factors in our new forecast,” he said.

    The IMF official mentioned that he has met with some government officials and discussed long-term and medium-term issues about the economy.

    “Most issues that we discussed were on how this economy could build structural reforms which could address inequalities, how to improve infrastructure investment, how to maintain the growth momentum, and the fiscal reforms to strengthen the revenue base mobilization. This is the focus of my visit,” he said.

    Infrastructure bottleneck
    Stressing the need for infrastructure development, Rhee said the current problem of the country in port congestion really shows the deficiency of infrastructure in the Philippines.

    “That’s the real bottleneck—because of the deficiency in infrastructure, policy management is quite difficult. We believe the effort of government to focus more on infrastructure is an important aspect,” he said.

    Rhee said one of the policy recommendations made by the IMF to the Philippines was to slightly increase the budget deficit up to 2 percent to enhance infrastructure investment.


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    1. I think it is not “to widen deficit”, but control the widening deficit to max 2% of GDP, to allow room for infra spending.

      With the lower loan-to-GDP ratio, the IMF is saying, the country needs to borrow from them to allow its infra spending.