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Philippines: Gov’t budget plan intact despite US Fed hike
The Duterte administration’s pump-priming plan remains intact despite an expected rise in borrowing costs after the US Federal Reserve delivered its widely anticipated rate hike.
“This is the most anticipated move by the Fed, hence, (it) won’t change our fiscal program, especially the expenditure plan,” Budget Secretary Benjamin Diokno said in a text message on Thursday.
On top of that, the budget chief said he “does not expect to borrow a lot in the years ahead” even as the budget deficit is programmed to widen with a surge in spending.
On Wednesday, US Fed chair Janet Yellen led her board to raise US key rates to 0.75 percent from 0.25 percent, delivering just her second adjustment a year after she departed from an ultra-loose money policy.
The move, in effect, sets the rest of the world to higher interest rates that could impact debt servicing costs for the government and higher prices for consumers and investors.
But National Treasurer Roberto Tan is unperturbed. “We remain confident that despite these external developments and market volatility, the country’s fundamentals and economic resilience will carry us forward,” he said.
“The market, however, would have to digest the impact of this move,” he said in a text message.
The Philippine Stock Exchange index closed down 73.03 points or 1.05 percent on Thursday at 6,855.31, while the peso averaged weaker at 41.912 against the dollar on morning trade.
For next year, the government is programmed to borrow P631.29 billion, down 9.22 percent year-on-year, budget data showed.
Diokno said 80 percent of borrowings will come from domestic sources, making them least affected by foreign exchange and rate swings that raise their value.
Lower borrowings will come even as the deficit — the gap between revenues and spending — is expected to widen to P478.1 billion from the cap of P388.9 billion this year.
Alvin Ang, an economist at Ateneo de Manila University, said this means there is a need to raise more revenues to ensure the budget program is not breached.
“This rate hike was already factored in. What should we watch out for is the three forecast increases next year. The magnitude of that and how fast will that be,” Ang said in a phone interview.
Tan said the pace could accelerate with the plan of US President-elect Donald Trump to also increase spending, something that will boost the US economy and make it attractive to investors.
Faster rate increases will not only impact the government, but also local consumers which now have started dealing with higher prices due to the weak peso.
Inflation, as measured by the consumer price index, hit a near two-year high of 2.5 percent in November, data showed.
“We are already feeling its impact. The key here will be for the government to continue with its local programs to support the economy,” Ang said.
Tan, meanwhile, reiterated the new government’s commitment to higher spending.
“This administration will continue to pursue its economic agenda, including aggressive investments in infrastructure and broad-based social services,” he said.
Source: http://www.philstar.com/business/2016/12/15/1653734/govt-budget-plan-intact-despite-us-fed-hike