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Execs nix IMF’s ‘tough advice’

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“There is merit to reviewing the IMF proposal.

Economic managers frowned on an International Monetary Fund (IMF) proposal to lower the budget deficit limit to 2.4 percent of gross domestic product (GDP) this year and next since this will mean huge cutbacks in government spending mainly on infrastructure.

Finance Secretary Carlos Dominguez III described the IMF’s proposal as a “tough advice” as he said the government is already proceeding full steam with the infrastructure buildup.

“Given deliberate improvements in our process, projects are in full steam to realize benefits envisioned in a timely manner. We do acknowledge that adjustments may be necessary to adequately respond to the changing macroeconomic landscape both internal and external,” Dominguez said.

The finance chief added, however, the IMF recommendation will still be discussed in the Cabinet-level Development Budget Coordination Committee (DBCC) to get a complete view from all economic officials.

Proposal for review
Among the policy recommendations of the IMF at the conclusion of a two-week assessment of the Philippines was to reduce the annual budget shortfall from a ceiling of three percent of GDP for 2018, 3.2 percent for 2019 and three percent for 2020-2022.

The high deficit space was meant to allow for increased government spending that is projected to act as a stimulus to economic growth.

Economic managers, however, noted the rationale behind the proposal which is to help keep inflationary pressures in check to maintain stability of the economy while achieving robust growth.

The IMF-proposed adjustment in the budget deficit limit will ease the burden on monetary policy in managing inflation.

Economic officials said high inflation this year is due mainly to factors that are one-off and transitory, including the rise in global oil prices, the imposition of excise tax on sugar sweetened beverages and higher excise tax on tobacco as well as supply-related problems for rice.

The proposed lifting of quantitative restrictions on rice imports, certified as urgent by President Rodrigo Duterte during his State of the Nation Address (SoNA) last Monday, is expected to reduce inflation by 0.4 percentage points, economic officials said in a joint statement.

‘Feasible’
The joint statement, signed by Dominguez, Budget Secretary Benjamin Diokno and Socioeconomic Planning Secretary Ernesto Pernia, said the existing medium-term budget deficit ceiling takes into account the bold infrastructure development program “Build, Build, Build.”

“The program is meant to address the country’s long-standing and yawning infrastructure gap which has dragged the country’s competitiveness for decades and which the IMF itself had pushed the Philippines to address,” the statement added.

Diokno said there is merit to reviewing the IMF proposal but cautioned against the implication of abandoning certain projects.

“Reducing the budget deficit program to 2.4 percent of GDP is feasible. However, the implication of abandoning some of our big-ticket projects is something we are not comfortable with,” he said.

He added the Duterte administration is “gaining significant progress in our aim to accelerate infrastructure development to boost the country’s competitiveness and improve the quality of life of Filipinos.”

“We do not intend to slide back,” the budget chief said.

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