Officials explain how inflation impacts national budget
MANILA, Philippines — Senate Minority Leader Aquilino Pimentel III on Tuesday has questioned the impact of inflation on the national government’s budgeting.
He noted that Congress approved a budget for 2023 with the hope of meeting the government's target inflation rate.
Despite this, inflation for 2023 exceeded the target range of 2% to 4%. The actual headline inflation ended at around 6%.
“Do we use our budget to obsess with that budget? Kasi looks like it really does not affect much the process,” Pimentel said during the briefing.
According to Budget Secretary Amenah Pangandaman, higher inflation rates have an unexpected upside of higher government revenues.
“We have a budget sensitivity for the macroeconomic parameters, and based on our data, for inflation rate at least, a 1% increase of inflation will grow our revenues by P33.9 billion, and there’s no deficit implication is expected since government expenditures are limited by the available appropriations however,” Pangandaman said.
An International Monetary Fund (IMF) paper supports this, indicating that inflation can temporarily improve fiscal balances as revenue adjusts quickly, while primary expenditures take longer to catch up.
However, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan noted the negative effects of inflation on economic growth.
He explained that inflation drives up the cost of goods and services, leading to reduced consumer spending.
“Because of the unexpectedly high inflation resulted in the lower growth performance, as you could see the domestic demand growth was lower than expected, particularly household consumption was negatively affected by the high inflation, and because that high inflation was also associated with high interest rate with the lag, that also affected the investment side of the equation,” Balisacan explained.
A 2023 Pulse Asia survey supports these findings, showing that 95% of Filipinos are spending more on food, but more than half are actually eating less.
As a result, large chunks of the budget are devoted to assisting the population in coping with the impacts of inflation.
During the briefing, Pangandaman explained that the National Expenditure Program (NEP) includes provisions for social assistance to address the impacts of inflation. As inflation increases, additional aid is allocated through agencies such as the Department of Social Welfare and Development.
The proposed budget for the Pantawid Pamilyang Pilipino Program (4Ps), the government’s flagship poverty alleviation program, went up by P7.9 billion, going from P106.3 billion in the 2024 budget to P114.2 billion in the 2025 NEP.
Executive Order 64 has introduced a wage hike for civilian government workers, with P70 billion allocated in the 2025 NEP for this purpose.
Balisacan also said that the effects of inflation have a lag effect, meaning the full impact will not be felt immediately
“We are budgeting for expenses of the government based on our expectation of growth, our target for growth. If our growth for this year is going to be lower because of the past inflation, and passing interest rates, then we are not going to achieve the target and then that will lead to deficits and even debt,” Balisacan said.
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