DESPITE looming calls from various departments and stakeholders, Finance Secretary Carlos Dominguez III believes that pumping more fiscal stimulus into the economy is not the answer to boosting its growth prospects.
In the DBCC Virtual Press Briefing late Thursday, Dominguez said the Philippine economy does not need any further fiscal stimulus as the country’s foundations—as measured by its productive capacity—remain intact.
“There is one Asean country that spent in excess of 30 percent of their GDP [gross domestic product] and yet their GDP dropped almost 19 percent. That is the same for another European country that spent 23 percent of their GDP and their GDP dropped by 21 percent,” Dominguez said.
“So there is no direct relationship between 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 supporting government initiatives.
Among the latest of such was the Bangko Sentral ng Pilipinas (BSP) governor who, in the same day, said “sustained and targeted fiscal interventions at this juncture are crucial in reviving domestic demand” as monetary policy effectiveness is being weakened by banks’ reluctance to lend and borrowers’ hesitance to borrow.
The country’s main financial manager, however, on Thursday said the country needs to stick to its original strategy of managing its fiscal deficit.
“You have to take a look at what our fiscal deficit is going to be. Our original strategy was to land in the middle of 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 around the middle of the pack,” Dominguez said.
The Finance chief said that since the productive capacity of the Philippines has not been damaged, the root of the problem is not the lack of fiscal stimulus, but the people’s fear of infection.
“When you look at what is really holding back our economy in this particular time, it seems to me that it is the lack of confidence of people in spending. So rather than a stimulus package that’s a giveaway package, it is not really going to work as well as if we do the budget stimulus, as well as give people the confidence that they are not going to get sick or die of Covid,” Dominguez said.
“When you restrict the movements of the young people that are 40 percent of our population, you are reducing the demand. But the productive capacity, the educated people, the infrastructure that we are continuously building, it is there,” he added.
“So, the economy is just waiting for this fear factor to be removed for people who have confidence that they will not get sick, and this economy, believe me, is going to boom,” he further said.
Unspent funds
Another basis for why the national government is cool to supporting another stimulus bill, per the DOF: the government still has unspent funds which could be spent for next year.
Dominguez said the government still had P213 billion unspent from the national budget and the
Bayanihan 2.
Dominguez also said the country’s deficit to GDP ratio which is at 8.9 percent, will leave the government in a “very, very tight fiscal situation.”
“At this point in time we cannot say that we are supporting another Bayanihan 3 bill. However, we are planning to spend what is unspent for this year in both the GAA and the budget and the Bayanihan 2. So that is an additional P213 billion, if I’m not mistaken, so that could be the stimulus for next year,” Dominguez said.
With both houses of Congress passing the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, the economy will get another “stimulus package,” he added.
Micro, small, and medium enterprises earning less than P5 million a year will see their corporate income tax reduced to 20 percent from 30 percent.
For companies earning more than P5 million, the CIT will also be reduced to 25 percent from the current 30 percent.
“That bill includes a large stimulus by reducing taxes on both large companies and small companies,” Dominguez said. “That in itself is also a stimulus package.”
Vaccines vs fear
In order to dispel the fear factor, Dominguez said the government is spending at least P73 billion to purchase Covid-19 vaccines.
He said this is just 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 would be able to purchase vaccines for 60 million.