Fiscal consolidation, DBM reforms, and global growth
August 1, 2024 | 12:02 am
My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
I will cover three topics today, so we go straight to the numbers.
On July 29, the Department of Budget and Management (DBM) released the budget materials for 2025. These include the National Expenditure Program (NEP), the Budget of Expenditures and Sources of Financing (BESF), Staffing Summary, and the President’s Budget Message.
I will now compare the projections in the fiscal program in BESF 2024 vs BESF 2025. Although the Obligation budget is the same in both documents, the projected disbursements differ — P5.63 trillion for 2024 and P5.75 trillion for 2025, or higher by around P126 billion in the latter. Consequently, the projected deficit is higher by P127 billion.
More borrowings were needed this year than initially projected last year. Our interest payment is jumping like a kangaroo: from P503 billion in 2022, it rose to P628 billion in 2023, is projected to be P763 billion this year, P848 billion in 2025, and up to P1.06 trillion in 2027, or an average increase of P111 billion/year on interest payment alone, with principal amortization not included yet.
The outstanding public debt is projected to increase by P1.3 trillion/year on average, from P13.418 trillion in 2022 to P14.616 trillion in 2023 to P17.354 trillion in 2025 (see Table 1).
DBM REFORMS TOWARDS FISCAL CONSOLIDATION
Fiscal consolidation should have the end goal of reducing the public debt stock, reducing the annual interest payment, and reducing overall interest rates as government competition for funds decline, and in the process facilitate sustained economic growth and high job creation. From the DBM social media accounts, I see that among their major reforms are: Public Financial Management (PFM), Early Procurement Activities (EPA), cash budgeting, and the National Government Rightsizing Program (NGRP).
PFM means more fiscal transparency through the principles of aggregate fiscal discipline (spending within one’s means), allocative efficiency (spending on the right priorities), and operational efficiency (spending with the greatest value-for-money). EPA is meant to ensure the timely implementation of government projects — the procuring entities (PEs) can commence with the procurement once the proposed budget has been made, in the case of the National Government when the National Expenditure Program (NEP) has been submitted to Congress. Cash budgeting is meant to ensure the availability of cash resources for priority development projects, quicken the government’s budget utilization, promote discipline since agencies will only propose projects and programs that are implementation-ready.
The NGRP is meant to streamline national government agencies through regularization, merging, restructuring, abolition, or transfer of government agencies to create a more efficient bureaucracy. As an advocate of minimal government and bureaucracy, my favorite among the four are PFM and NGRP. Government should learn to live within its means, and control spending and borrowing that are not supported by existing revenues. Better yet, live below the means, have a fiscal surplus when there is no economic crisis and reduce the debt stock. NGRP is self-explanatory.
DBM Secretary Amenah F. Pangandaman says that “fiscal consolidation remains an important goal for DBM and the Development Budget Coordination Committee. Allocate public resources to projects, physical and social infrastructures with the greatest positive impact to the people in raising their productivity, facilitate stronger economic performance to outgrow the debt, achieve the medium-term goals of Deficit/GDP ratio of 3.7% and Debt/GDP ratio of 56% or lower by 2028.”
DEGROWTH IN EUROPE
Last Monday and Tuesday, several European countries reported their 2nd quarter (Q2) 2024 GDP performance. I consolidated their Q1 and Q2 data into first half (H1) GDP growth this year. Few have growth above 1%, most are below 1% and some have even contracted like Germany, Austria and Ireland. In contrast, many East Asian countries have had growth of 2.8% to 6+% over the same period (see Table 2).
It is ironic that many European countries are busy with “Save Ukraine” or “Save the planet” policies but cannot save their own economies from degrowth and deindustrialization. East Asians (except Japan) are busier saving their economies and manufacturing from degrowth and blackouts by keeping their use of fossil fuels or hydrocarbon power plants high or rising.
The Philippines’ Q2 2024 GDP will be reported on Aug. 8. I predict growth of 6% to 6.2%. I will explain the numbers here next week.
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