6.5-7% 2010 growth ‘possible’

Written by Mia M. Gonzalez / Reporter

Tuesday, 20 July 2010 21:28

FOLLOWING the government’s decision to raise the deficit ceiling, the economy may grow by as much as 6.5 percent to 7 percent this year provided that inflation remains low, National Economic and Development Authority (Neda) Deputy Director General Augusto Santos said on Tuesday. Santos told reporters after the Cabinet meeting that with the economic managers’ decision to increase this year’s deficit ceiling from P300 billion to P325 billion to channel more funds to infrastructure and social services, “there is a greater chance of having more economic growth.” Meanwhile, the International Monetary Fund, having earlier recalibrated this year’s growth in terms of the gross domestic product to 6 percent from 3.5 percent, similarly recast growth next year to a higher rate averaging 4.5 percent, from 4 percent. “Higher growth is very possible. It can be achieved,” IMF head of mission Vivek Arora said in a briefing Tuesday at the central bank complex. Santos for his part said the Neda is “optimistic” the government can meet its 5 percent to 6 percent projected GDP growth target for 2010. Asked what would be the range if the GDP target were upgraded, Santos said: “It can be in the range of. . . 6.5 percent to 7 percent because of spending.” He said the government “has elbow- room for spending because inflation has been benign and so, therefore, I myself think that we should continue with this accommodative fiscal and monetary policies.” “The central bank has decided to keep interest rates as is. For fiscal spending, the budget by itself speaks for itself,” Santos added. He said the government could afford to keep its accommodative stance for as long as inflation remains low. “My prescription to that is the moment we see even a small uptick in inflation, then that is an indication that we should start reining in loose fiscal and monetary policies. That will be my own indicator. The moment I see a slight uptick in inflation, then that’s the signal,” Santos said. Budget Secretary Florencio Abad said the budget deficit in the first six months of the year is “likely” to breach P178.5 billion—the projected first-semester deficit as estimated by then-Finance Secretary Margarito Teves. Abad said the possibly higher-than-projected first semester deficit, which may be officially announced on Wednesday, is due to increased spending and expenditures that ran up to “the billions” toward the end of the previous administration. “There were still surprises in the expenses, expenditures made up to the last month, up to the end of June, June 30. Like in congressional initiatives, for example,” he said. When asked, Abad said the government will “most likely” consider more borrowings if it does not meet its collection targets. “Well, if the collection targets are not achieved, that is the most likely step that we have to take and I think Finance Secretary [Cesar] Purisima is looking at that,” he said. Purisima said borrowings would always have foreign and local components, and the mix would depend on what’s the most advantageous for the government. “We have to be opportunistic about all of these things so that we can get our debt at the cheapest cost [possible]. We will announce at the right time,” he said. Asked whether the current economic numbers, particularly the deficit, are a cause of concern for the economic managers, Purisima said: “No. We’re looking forward. We believe that what’s past is past, and we cannot do anything about it. So what’s important for us is what we will do in the next six months, which we have declared, and what we will do in the next six years. I think that’s what’s important.”