The softening of the country's budget deficit is expected to send a positive signal to foreign investors and bring in much needed resources to the Philippines.

During the Laging Handa briefing yesterday, economist Michael Batu said the decline in budget deficit last year allows the government to have a wider fiscal space.

The deficit in 2022 cooled down by 3.35 percent to P1.61 trillion from the 2021 level of P1.67 trillion as the growth in revenues managed to outpace overall state spending.

'If there is better fiscal space, the government has the chance to fund more programs,' Batu said.

'This also sends a good signal to foreign investors because they look at how the economy is being managed by the government,' he said.

Last year, investment commitments from foreign firms rose by 26 percent to P242 billion as the economy further reopened.

Finance Secretary Benjamin Diokno earlier said the fiscal performance showed that the country is on track with its medium-term fiscal framework target of reducing deficit as a percentage of the economy without compromising growth.

The deficit, when measured against the gross domestic product (GDP), eased to 7.3 percent last year from the record high 8.6 percent in 2021.

'One of the indicators of good macroeconomic management is how we deal with our fiscal space,' Batu said.

Further, Batu emphasized that the Philippine economy remains sound, with opportunities for growth coming from sectors that are just starting to recover from the pandemic.

However, he raised concern over the still elevated inflation especially on food items that are driving the headline rate.

Last month, inflation slightly eased to 8.6 percent mainly due to the lower contribution of transportation amid the decline in petroleum prices.

However, food and non-alcoholic beverages remained the highest driver, rising by 10.3 percent, equivalent to 58.6 percent of the overall rate.

'About 40 percent of a person's income goes to food, so it's a huge reduction in purchasing power. Especially for the low-income bracket where food accounts for 60 percent of their expenditures,'' Batu said.

The economist noted that the government needs to have policies both in the short and long-term to pull down prices of food and contribute to food security.

Diokno said the government would move toward an aggressive and focused campaign to address food supply and higher utility rates to tame inflation.

The government said it would intensify the implementation of programs that would help boost production and enhance agricultural productivity, reduce restrictions and ensure the timely importation of commodities with supply deficits, and strengthen ground monitoring and assessment.


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