High spending draws investors' concerns

this story was taken from www.inq7money.net
URL: http://money.inq7.net/topstories/view_topstories.php?yyyy=2006&mon=04&dd=24&file=17

Posted: 1:39 AM | Apr. 24, 2006
Michelle V. Remo
Inquirer

Published on Page B14 of the April 24, 2006 issue of the Philippine Daily Inquirer

 

THE GOVERNMENT'S policy of spending the bulk of its programmed expenditure for 2006 in the earlier months of the year has drawn the concern of investors and analysts, who said that the fiscal strategy threatens to breach the budget-deficit target for the full year.

 

Investment banks noted that in 2002, the government had hit its full-year deficit target as early as July. The government then had a hard time restricting spending in the latter months of the year, according to a ranking finance official.

 

The official said that the Department of Finance has already received queries from several banks on whether the government's policy was prudent.

 

Earlier, the administration's economic managers saw the need to pump-prime the economy. They said that the fiscal program for 2006 was designed in such a way that most of the spending, especially for infrastructure, would be done in the first half of the year, to coincide with the dry season.

 

They likewise agreed that spending limits starting this year should be maximized.

 

Under the fiscal program for 2006, the government is allowed to post a budget deficit of P71.8 billion in the first quarter alone, P18.6 billion in the second, P31.6 billion in the third and only P2.9 billion in the fourth to stay within the P125-billion deficit ceiling set for the full year.

 

In the first quarter, the government's budget deficit actually hit P67.6 billion, accounting for 54 percent of the deficit program for the whole of 2006.

 

The first-quarter deficit was, however, still lower than the P71.8-billion programmed deficit for the period.

 

The new fiscal policy forced some investors to question whether the government could keep to its 2006 target without going over the P125-billion budget deficit ceiling, the official said.

 

But National Treasurer Omar Cruz has shrugged off concerns that the new fiscal policy threatens the government's fiscal goals.

 

Cruz said the government remained committed to meeting the target of reducing the deficit to P125 billion this year, and wiping it out by 2008. But he stressed that this would be accomplished not through tight spending but through increasing revenue collection.

 

The government's intention to maximize and front-load spending this year is a turnaround from the belt-tightening policy of last year, when the government hit a budget deficit much lower than programmed mainly through expenditure cuts.

 

While the government set a deficit ceiling of P180 billion for last year, it recorded a budget gap of only P146.8 billion at the end of 2005-P33.2 billion lower than programmed.

 

Following last year's cautious spending and the increase in revenue collection, the government has decided to put a premium on pump-priming the economy this year, Cruz said.