THE national government needs an additional P734-billion initial stimulus to boost the economy, according to estimates made by the National Economic and Development Authority (Neda) and the Department of Finance (DOF).
Documents obtained by the BusinessMirror showed that the amount accounts for 3.8 percent of the country’s GDP. Of this amount, 0.9 percent of GDP is composed of a fiscal stimulus.
The remaining 2.9 percent comprises savings, off-budget, monetary policy, financial sector regulatory relief, and private sector contribution.
“Reconciling the macro framework and survey results: P734 billion of initial stimulus is needed, but fiscal space is limited. Base case (-2 percent real GDP growth in 2020),” the document stated.
Based on Neda and DOF estimates, the 2020 pre-coronavirus 2019 (Covid-19) was estimated at P21.468 trillion. However, due to the pandemic, this will decline to P19.554 trillion.
This represents a reduction of P1.914 trillion in nominal GDP due to Covid-19. Of this amount, 87 percent or P1.665 trillion are losses due to profits and wages.
However, Neda and DOF said there is a need to keep spending prudent and ensure that the country’s deficit-to-GDP ratio and debt-to-GDP ratio are in check.
For the deficit-to-GDP ratio, the government said the country is already at 5.3 percent. But with the recovery program in place, it is estimated the government can keep this to around 6.18 percent deficit-to-GDP ratio.
In terms of debt-to-GDP ratio, the government aims to keep this to below 50 percent of GDP. As of 2019, the debt-to-GDP ratio is at 39.6 percent, the lowest in nearly 40 years.
“[There is a need to] limit exposure and contingent liabilities by having highly targeted equity infusion to the most affected industries subject to conditions,” the document stated.
The country’s debt-to-GDP ratio was at its highest in 2004 when it reached 71.6 percent, followed by 2003 when it was at 71.1 percent. Economists at that time said the country was on the brink of a fiscal crisis.
Austerity measures implemented by the government after 2004 allowed it to cut the debt-to-GDP ratio to 65.7 percent in 2005 and 58.8 percent in 2006.
In 2011, the country’s debt-to-GDP ratio further declined to 48.8 percent. In 2018, the debt-to-GDP ratio reached 38.9 percent.