The government is willing to incur a slightly higher budget deficit, if necessary, as long as infrastructure spending is sustained for long-term economic growth, according to Finance Secretary Benjamin Diokno.

During the post-State of the Nation Address economic briefing yesterday, Diokno said the Marcos administration would continue to prioritize infrastructure, especially as it is expected to get a boost from the recently enacted Maharlika Investment Fund (MIF).

'I have been in government for too long and I have seen the folly of stopping infrastructure,' Diokno said.

'I am willing to increase the deficit, if necessary, as long as we can continue our infrastructure projects and the quality of spending is retained,' he said.

Based on the medium-term fiscal framework, the government targets to bring the deficit, as a percentage of gross domestic product, to three percent by the end of the Marcos administration in 2028.

Deficit-to-GDP ratio in 2022 was at 7.3 percent and is projected to decline to 6.1 percent this year.

Reducing the budget deficit would mean higher revenues for the government while being prudent in its state spending.

'I won't stop the infrastructure spending because slowing it down will only have negative consequences,' Diokno said.

'There will be many unfinished projects and when you prolong, it could change the calculation of net percentage value, rate of returns, among others,' he said.

The infrastructure program for 2023 is at P1.29 trillion or 5.3 percent of GDP.

This is projected to be on an upward trend and may reach P2.3 trillion by 2028, equivalent to six percent of the economy.

'Once you start any project, you have to make sure that you finish it. When you make a plan, it's not going to be a straight line. There will be adjustments along the way,' Diokno said.

As the government ramps up its infrastructure, there are concerns that it could increase imports and thereby hike the current account deficit, which tripled to an all-time high of $17.8 billion in 2022.

The current account consists of transactions in goods, services, primary income and secondary income. It measures the net transfer of real resources between the domestic economy and the rest of the world.

A current account deficit occurs when a country spends more on imports than it receives on exports.

Diokno emphasized that the current account was in surplus when the government was not spending on infrastructure, at a time when the peso was appreciating.

'Because of the need for infrastructure spending, we have a deficit, but it is a good way of having a deficit because you are investing in infrastructure,' Diokno said.

'The peso right now is in a comfortable place, but we are shooting for a competitive peso. I'm not worried about the possible peso depreciation at this time,' he said.

The government is also banking on the MIF to serve as a vehicle for growth for infrastructure.

As an additional source of funding, the MIF is expected to widen the fiscal space and reduce reliance on official development assistance in funding big-ticket items.

Some target investment areas include green and blue projects, rural development, digitalization, sustainable development and healthcare.

 

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