P25-B in expected savings gives gov’t some elbow room

The combined effects of declining interest rates and optimistic revenue projections gives the Arroyo administration room for about P20 to P25 billion in the 2004 budget to either increase its expenditures or cut down its deficit.

Meeting early yesterday, the Development Budget and Coordinating Committee (DBCC) has directed the Department of Finance to recalculate the projected interest expense for 2004 based on lower interest rate assumptions as the benchmark 91-day T-bill rate has dropped to record lows this year.

Finance Secretary Jose Isidro Camacho told reporters that the government expects a decline in its debt service costs in 2004 and this would give the Arroyo administration substantial room to adjust its budget for the election year.

According to Camacho, debt service costs would decline because the 2004 projections were based on the medium-term assumptions that pegged the interest rates at nine percent.

"We asked the Bureau of Treasury to recompute the interest expense based on a 7.5 percent interest rate so this would bring down our projected interest expense next year," Camacho said.

Combined with the projected increase in revenue collections, Camacho said this would create a room of about P20 billion to P25 billion although he said the DBCC still has to decide what to do with this allowance created by the two major factors.

"This only reflects how much room we have to either increase expenditures or to cut down on our programmed deficit for 2004," he said. "The DBCC has not made that decision yet because a lot of factors that determine the budget would have to be factored in."

At most, Camacho said the 2004 budget would stick to the objective of reducing the deficit to at least 4.2 percent of gross domestic product, putting the 2004 deficit at around P190 billion based on a projected GDP growth of 4.9 percent.

According to Camacho, however, the DOF’s position was to keep expenditures open. "We don’t want to commit this amount by increasing expenditures. Of course the objective is to keep this flexibility as wide as possible."

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said his recommendation was not to spend this amount by increasing expenditures but to instead ensure that the deficit would continue to go down.

"The government has a commitment to reduce its deficit so it only improves our prospects," Buenaventura said.

On the other hand, Economic Planning Secretary Romulo Neri said that the budget under deliberation would be "pro-growth" but constrained by the requirement to reduce the deficit.

"Our 2004 budget would support investments and exports to keep our balance of payments healthy while we undertake steps to keep costs down, reduce risks and ensure policy continuity," Neri said.

Neri said the biggest concern was to ensure policy continuity which he said was discouraging investments. "Businessmen are concerned with the predictability of contracts," he said. "That’s why we can not slowdown on our judicial reforms because we don’t want judicial concerns to hamper investments."