Fiscal policy refers to how a government manages the economy through taxation, spending, and borrowing. When the government spends more or cuts taxes, it can stimulate the economy and create jobs, while higher taxes or spending cuts can help slow inflation or reduce debt. The Department of Finance serves as the lead agency for fiscal policy, overseeing tax policy, government financing, and debt management.
Tools for stability
Meanwhile, monetary policy, which is handled by the BSP, primarily addresses inflation through the setting of interest and deposit rates for banks while also influencing money supply and banking stability. The BSP and fiscal agencies coordinate closely because taxes, government spending, inflation, and interest rates all affect one another.
In a recent advisory, Aris Dacanay, senior ASEAN economist at HSBC, said the three-year-high 7.2-percent inflation rate recorded in April, combined with the third consecutive quarter of slowing gross domestic product (GDP) growth, indicates that stagflation may be beginning to take shape.
Stagflation is an economic condition characterized by the simultaneous occurrence of slow economic growth, high unemployment, and rapidly rising prices.
