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During
the past month, the House of Representatives and the
Senate were engrossed in discussing the 2009 budget of
the President.
In the
course of reviewing the budget, bitter debates on major
issues like the debt-service burden erupted. The most
dramatic and contentious was the accusation of double
allocations leveled by Sen. Panfilo Lacson against Sen.
Manuel Villar.
There
were also debates on the macroeconomic assumptions in
both houses, but these did not gain public attention
until the $700-billion rescue package crafted by the US
Department of Treasury was initially rejected by the
American Congress. Filipino congressmen and senators
rushed back to the 2009 budget and wondered loudly if
the macroeconomic assumptions should be revisited.
So what
are the macroeconomic assumptions all about? And what
are the implications of the US financial meltdown on the
national budget?
The role
of macroeconomic assumptions in the national budget
The
calculation of the national budget is not supposed to be
snatched out of thin air. These are based on assumptions
on macroeconomic indicators and forecasts about the
economy. The most important among these indicators are
the gross national product (GNP) real growth (percent),
the gross domestic product (GDP) real growth (percent),
inflation rate (percent), the 91-day T-bill rate
(percent) and the foreign-exchange rate (percent).
To a
large degree, therefore, the size of the budget and the
broad priorities are determined by the macroeconomic
assumptions. It is, therefore, important to ask whether
these constitute a fairly accurate forecast or serve
more as optimistic political declarations.
In other
words, are these assumptions nothing more than
overconfident presumptions?
The
macroeconomic assumptions for 2009: Versions 1 to 3
So far,
three versions of the macroeconomic assumptions have
been submitted to Congress: version 1 upon the issuance
of the budget call in May to government agencies;
version 2, as reflected in the Budget of Expenditures
and Sources of Financing (BESF) submitted to Congress;
and version 3 during the latest interpellation of the
presidential economic team by the House.
To my
knowledge, this is the first time in national budgeting
that macroeconomic assumptions, which were already
submitted, had to be revised publicly. This is because
the gaps between the assumptions and reality were so
wide they make the economic team look ridiculous.
Take a
look at the assumptions on growth. The 2009 budget call
assumes a GDP real growth of 6.5 percent to 7.3 percent,
while the BESF assumes it will be 6.1 percent to 7.1
percent. The latest version now assumes it will be 4.1
to 5.1 percent. This is clearly a drastic downward
trend.
The same
is true for assumptions for inflation, exchange rate and
balance of trade. The inflation rate for 2009 was
originally estimated at 2.5 percent to 4.5 percent. It
appears absurd when the current rate is already more
than 12 percent. As the impacts of the global financial
crisis deepen, the Philippine economy further slows
down.
What
about the deficit? The original deficit target for 2009
was zero. This was later revised to P40 billion. Now it
is projected at P60 billion! If the deficit goes up, the
level of borrowings will, of course, go up. The BESF
calculates that P437 billion has to be borrowed to net
the amount of P40 billion. This is because interest and
amortization for due loans have to be deducted first.
How much will be borrowed to cover a P75-billion
deficit?
Waiting
for the US rescue package
The
parade of different macroeconomic assumptions will
continue. The economic team promised to make another
revision once the US rescue package is approved.
Some
words of advice, though. It does not necessarily mean
that just because the $700-billion package has finally
been approved by both houses, the money will
automatically be ready for distribution to the
distressed institutions. The US Treasury will have to
borrow and raise that monstrous amount first. It will
most likely be released in tranches.
Once
again, the calculation of the size of the budget and
priorities in allocation is determined by the
macroeconomic assumptions. It cannot be taken lightly by
the legislators. Assumptions which are off-track can
have disastrous consequences for the Philippines.
As the
House and the Senate wrestle with the 2009 budget, it is
to be hoped that our leaders will be guided by national
interest when they examine the literally overweight
five-volume national budget. The proposal of the
Alternative Budget Initiative that P34 billion in
additional expenditures for education, health,
agriculture and the environment must be considered.
At the
same time, they have identified more than P82 billion in
executive proposals which are vague, highly
discretionary and vulnerable to manipulation and
duplication.
The time
has come for the budget to be used as a tool for the
protection of those who are unable to protect
themselves. |
