IN RECENT days, the peso has dipped to a
three-year low at P45 to a dollar. Should government authorities panic? I
hope not. Overall, its effect on economic growth, employment, the
government’s fiscal position, and the Bangko Sentral’s financial
position is positive.
The weakness of the peso could have an
adverse impact on government interest payments for 2014, National
Treasurer Rosalia de Leon said on Tuesday. She estimated that for every
peso appreciation against the US dollar, the government’s interest cost
increases by P2 billion.
But she didn’t appear alarmed. She mentioned that there are offsetting
factors to the peso depreciation. For one, the government intends to
borrow less than last year. It plans to borrow P715 billion from both
foreign and local sources in 2014. This is lower than 2013’s borrowing
program of P735 billion.
The planned financing mix this year is 13% foreign sources, 87% domestic
sources, or P95 billion externally and P620 billion internally.
In preparing the 2014 budget, the government assumed an exchange rate of
P41-P43 per US dollar. Assuming that the peso averages P45 per US
dollar, or two pesos lower, then the government could save $160 million
(P7.2 billion), since it would have to borrow only $2.11 billion instead
of $2.26 billion. That’s more than the potential additional borrowing
cost (the difference between P45 and P42 times P2 billion) estimated by
Treasurer de Leon.
But the Development Budget Coordination Committee (DBCC), the country’s
top fiscal policy body, has done a budget sensitivity analysis to some
macroeconomic parameters for FY 2014.
Based on the budget sensitivity table, a one-peso depreciation could
result in a P5.5 billion surplus or reduction in the budget deficit.
Revenues will increase by P8.4 billion through higher tax collection by
both the Bureaus of Customs and Internal Revenue. The incresase will be
partly offset by a P2.9 billion increase in disbursement owing to higher
interest payments.
With a P3 peso depreciation, to P45/$1 from P42/$1, the budget deficit
will be reduced by P16.5 billion (P5.5 times P3). Hence, the fiscal
authorities should not fear the peso depreciation.
The monetary authorities should not fear the weaker peso, too. It means
lower financial losses, or slight financial gains, for them. With the
peso depreciation the BSP would have the opportunity to make up for its
prior year’s gigantic loses.
Workers in both export-oriented and import-oriented manufacturing and
agriculture are big winners too. A weaker peso provides greater
opportunity for those employed, together the unemployed and
underemployed sitting in the sidelines, to find better and more decent
jobs.
The families of OFW workers are big winners too. With a weaker peso,
their remittances will increase, in peso terms. Consequently, they can
consume and invest more. In turn, the economy could grow much faster.
And according to the DBCC sensitivity analysis, a one-percentage point
increase in real GDP growth could raise government revenues by P17.1,
which the government can then spend in the next budget cycle. This
should appeal to policymakers and fiscal authorities.
Overall, the benefits outweigh the costs of a weaker peso. Hence,
policymakers shouldn’t fear it. They should embrace rather than fight
it.
(The author is Professor of Economics at the UP School of Economics and former Secretary of Budget and Management.)
THE PHILIPPINES’ above normal growth during
the last two years has been the highest in ASEAN-5. Yet it, too, has
the highest unemployment rate and poverty incidence. With its economic
expansion showing some sign of weakness, what kind of future can
Filipinos expect?
According to the most recent International
Labor Organization unemployment data, the Philippines has the worst
unemployment rate among ASEAN countries and Asia (India and China).
Where is the unemployment rate the highest? In the Philippines.
Not surprisingly, the recent Pulse Asia’s December 2013 Ulat ng Bayan
survey results show a worsening perception of quality of life (QOL) and
the state of the national economy.
When asked to compare their situation in December 2013 relative to that
12 months ago, 84% said that either they were worse off in December 2013
relative to that 12 months ago, or things had not changed -- 43% said
that their personal situation had deteriorated while 41% had said that
their personal circumstances had remained unchanged. Only a small
minority (15%) said that their personal situation had improved.
And even in the face of an improving economy, a big plurality
of Filipinos (45%) expect no change in their economic circumstances in
the coming 12 months.
The optimists (37%) outnumber the pessimists (19%) in the next 12 months, however.
Where is optimism for the next 12 months the highest? In the Visayas
(41%) and Mindanao (41%). Unexpectedly, pessimism is the highest in
Mindanao too (26%).
STATE OF THE ECONOMY HAS WORSENED
One of every two Filipinos
(50%) said that the national economy is worse now than the last 12
months. Forty percent (40%) said it has remained unchanged, while only
11% said that it has improved.
Simply put, nine of every 10 Filipinos (90%) did not feel the 7% GDP
growth during the last 12 months. This suggests that the strong growth
was narrow and shallow. It was far from being inclusive.
The change in perception was quick and drastic. Comparing the survey
results in December 2013 with those in June 2013, there was a large
increase in the percentage of Filipinos who saw the worsening of the
economy -- to half from 39%. Similarly, the percentage of Filipinos who
saw an improvement shrank from 28% in June 2013 to 11% in December 2013.
CCT COSTS AND BENEFITS
Some might ask: what happened to the
government’s Conditional Cash Transfer (CCT) Program, which had a budget
of P44.2 billion in 2013? How many household-beneficiaries were
promised and how many were delivered?
In 2014, Congress has appropriated 62.6 billion for CCT. The promise is
that the program will benefit 4,329,769 households for the regular CCT;
131,963 for the modified CCT; and 4,287,630 children beneficiaries for
the CCT extended coverage until high school.
Does the CCT program really work? Now on its fifth year of
implementation, the program needs an independent external evaluation.
The Commission on Audit found some lapses in the program’s
implementation.
The evaluation should find out whether CCT program really delivers on
its promises and whether there are better ways of achieving its
objective, which is to minimize dropout rates of poor students.
(The author is Professor of Economics and former Secretary of Budget and Management.)
