A study prepared by a House of Representatives think tank said House Bill 6815 or the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE Philippines) was the key to the country’s economic recovery and future growth.
The economy went on a tail spin following the lockdown imposed to control the spread of Coronavirus Disease 19.
The study was prepared by the House Congressional Policy and Budget Research Department (CPBRD), the congressional think tank for policy and institutional reforms.
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The proposed P1.3-trillion fund provided by the ARISE Philippines bill to spur the country’s economy amid the expected economic contraction in 2020 has caused worries that the national budget deficit would outpace the median in the region, hurting the credit rating status and long-term economic growth prospects of the country.
However, the Department of Finance and other agencies involved in the economy said the government could afford not more than P300 billion for the projects meant to jump start the economy.
The CPBRD study titled “Notes on Supplemental Budget”, the projected fiscal balances of Association of Southeast Asian Nations (ASEAN) member-states would be negative in 2020.
It cited that Indonesia was expected to post a fiscal balance of -6.3 percent of its gross domestic product (GDP); Malaysia, -4.7 percent; Singapore, -15.4 percent; Thailand, -5.5 percent; and Vietnam, -6.4 percent.
Fiscal balance
In comparison, the Philippine fiscal balance in 2020 is expected to be a mere -5.3 percent of its GDP. This translates to a budget deficit of 5.3 percent.
The CPBRD report further noted there was no country simultaneously combatting the COVID-19 pandemic and the economic recession that would not incur a higher budget deficit.
“Deficit spending could be considered sustainable if it does not result in persistently increasing and high debt-to-gross domestic produce ratio.”
The report added the projected increase to 5.3 percent from the original target of 3 percent would be due to government revenue shortfall and not to higher government spending.
“Without a supplemental budget, the government cannot spend more than the amount provided in this year’s general appropriations act. However, our legislators believe that the government should provide stronger economic stimulus, and take up the slack in private household consumption and investment through increased government spending in increasing the national health capacity, wage subsidies to critically affected sectors, loans to MSMEs (micro, small and medium enterprises), and infrastructure projects which can only be made possible by passing a supplemental budget or a special appropriations bill,” the think tank added.
Funding concerns
The report also addressed concerns on how the ARISE Philippines bill would be funded.
Under the Constitution, special appropriations are allowed if the National Treasurer certifies that funds are actually available or an additional revenue source is proposed.
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CPBRD said Section 27 of the 1987 Administrative Code on Supplemental Appropriations, which states that “supplemental or deficiency appropriations involving the creation of new offices, programs or activities may be enacted if accompanied by new revenue sources” does not specifically exclude borrowings as revenue sources.
In additon, the think tank said Section 13 of the 1987 Administrative Code also provided “No appropriations for current operations and capital outlays of the Government shall be proposed unless the amount involved is covered by the ordinary income, or unless it is supported by a proposal creating additional sources of funds or revenue, including those generated from domestic and foreign borrowings, sufficient to cover the same.”
Additionally, Section 13 on Budget Levels provides exceptions on the utilization of the national revenue: “The ordinary income of government shall be used primarily to provide appropriations for current operations, except in case of a national emergency or serious financial stress, the existence of which has been duly proclaimed by the President.”
Sources of funds
Although this section pertains to budget preparation, the CPBRD noted that Section 13 specifies domestic and foreign borrowings as additional sources of funds or revenue and cites a national emergency or serious financial stress as exceptions to the use of ordinary income of government for current operations.
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The study warned that without preventative measures, jobs might not be there when the recession would pass, many businesses might become bankrupt, and bank and national balance sheets could be impaired.
“The key to reduce the accumulation of ‘economic scar tissue’—which the ARISE Philippines bill seeks to achieve—is to minimize the number of unnecessary personal and corporate bankruptcies and ensure the public has money to spend even if they have not been able to work.”
“There is no doubt that the COVID-19 pandemic is not only a health crisis but an economic crisis as well. Countries all around the world are concerned not only of flattening the epidemiologic curve so that the national health care system is not overwhelmed and unnecessary loss of human life is avoided; but also in flattening the recession curve so that the economic cost, which is also ultimately human cost, is minimized,” the think tank added.
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