MANILA, Aug. 1 -- Depreciation of the Philippine peso is not bad at all for the government.
The reason: it will even increase state revenues.
This was disclosed by Department of Budget and Management (DBM) Secretary Benjamin Diokno on Tuesday during the Committee of Appropriations hearing at the House of Representatives, which was attended by members of the inter-agency Development Budget Coordination Committee (DBCC).
Diokno told lawmakers that “any changes from the macro-economic assumption has an impact on our fiscal cover.”
He said a Php1 depreciation will increase government expenditures by Php2.1 billion because it will increase the dollar value of the country’s foreign debt.
He, however, pointed out that a Php1 depreciation will hike state revenues by Php9.5 billion, thus, resulting to a net result of Php7.5 billion additional revenues
“So a peso depreciation is favorable to our budget,” he said.
Economic managers’ peso assumption for 2017 is between a range of 48-50.
To date, the peso is trading at 50-level to a dollar after opening for the year at 49.78 and finished the year’s first trading day at 49.77.
In recent weeks, the peso is nearing its 11-year low to a dollar on account of global economic growth concerns as well as anticipations for additional hikes in the Federal Reserve rates.
On Tuesday, it finished the day at 50.37 to a greenback.
A weak peso benefits, among others, recipients of Overseas Filipino Workers’ (OFW) remittances since it increases the local currency value of the dollar.
Remittances is among the major growth drivers of the domestic economy for decades now, given the rising number of OFWs, which numbers to more than nine million to date.
Domestic consumption remains strong because of remittance inflows, among others, thus, the robust expansion of gross domestic product (GDP).
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo, during the same hearing, said the peso, in nominal terms, looks like it has weakened but in real terms remains stable.
He said the local unit posted strong appreciation at the height of the global financial crisis in 2009 and its current weakness is just a part of the normalization process given the attractiveness of the dollar.
He, however, said that compared to other currencies in Asia, the peso continues to remain competitive.
“We have been stable all these years. That is true that in nominal terms the peso has depreciated but in real terms the peso has been stable,” he said.
Aside from weaker peso, Diokno said higher inflation rate is also not bad.
He said a one percent hike in the rate of price increases will result to Php20.7 billion in additional revenues without any increase in government spending.
In the first half of the year, inflation has averaged at 3.1 percent, slightly over the mid-point of the government’s two to four percent target range.
Higher importation growth is another plus factor for the economy, Dioko added.
Philippines import growth has been posting robust increases in recent years as the country takes in more goods from abroad to address rising domestic demand.
Philippine Statistics Authority (PSA) data show that imports grew by 16.6 percent year-on-year in May 2017, higher than the 13.7 percent expansion of exports.
The strong growth of importation has resulted to decline of the country’s current account (CA), a component of the balance of payment (BOP), which in turn is defined as the sum of a country’s total transactions with the rest of the world.
As of end-March 2017 CA has posted a USD318 million deficit, a turn-around from surpluses in more than a decade. The full-year assumption of the central bank is a current account deficit of USD500 million.
Last June, the country’s BOP posted a USD706 million deficit, higher than the USD500 million deficit target for 2017.
Guinigundo said a deficit in the BOP position as a result of higher importation to address rising domestic needs is not bad for the economy.
”This is an investment for the future because that can translate to higher capacity and higher productivity, which over the long run, can translate into higher production and lower inflation,” he added. (PNA)