THE head of the Senate economic affairs panel said the Arroyo administration needs an additional P15.6 billion to adjust the government’s 2008 spending program to prevailing high prices triggered by double-digit inflation.

This, even as Socioeconomic Planning Secretary Ralph Recto said the proposed P1.4-trillion budget for 2009 would be enough to attain growth targets for that year, or a range of 6.1 percent to 7.1 percent. The proposed outlay is 15 percent higher than this year’s.

Speaking on the gap created in this year’s spending budget by inflation, Sen. Loren Legarda said the national government, being the country’s single-biggest consumer, is also adversely affected in a big way by soaring commodity prices, just like most Filipino consumers.

“On account of higher prices of goods and services, we reckon the government would need an additional P15.6 billion to adequately fund this year’s spending program, as outlined in the national budget,” the senator said.

Her estimate was based on a Department of Finance projection that government expenditures increase by P2.6 billion every time the inflation rate goes up by a percentage point.

She noted that Congress passed this year’s P1.24-trillion national budget on the assumption that the inflation rate would average only 5 percent, at most.

Legarda added, however, that due to rising oil and food prices, the Bangko Sentral ng Pilipinas (BSP) now expects the inflation rate to average up to 11 percent this year.

“The P15.6 billion is the result of the [six-percentage-point] difference between the BSP’s 11-percent projection and the 5 percent presumed in the budget, multiplied by P2.6 billion,” she explained. The National Statistics Office reported earlier this month that the nationwide inflation rate surged to 12.2 percent in July, the highest in 17 years.

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every peso earned by a household buys a smaller percentage of a product or service.

Legarda noted that the July inflation rate meant that consumers had to shell out 12.2 percent more in July for the same basket of goods that they bought in the same month in 2007. July was the second month in a row that the inflation rate stood at double-digit levels. The inflation rate was 11.4 percent in June; 9.5 percent in May; 8.3 percent in April; 6.4 percent in March; 5.4 percent in February; and 4.9 percent in January.

Thus far, she added, the inflation rate already averaged 8.3 percent in the seven months to July.

“This really underscores the need for the government to aggressively fight consumer price increases, which have been hurting ordinary Filipinos and the government,” the senator said as she renewed her call for the government to increase infrastructure spending, particularly for agriculture.

She explained that building up farm systems would not only provide more income for growers and new jobs for rural workers, but also ensure abundant food supply, which is crucially important to fighting inflation. “Robust farm production is the best way for us to guarantee affordable food. As long as we have ample supply of food that is within reach of ordinary families, we can fight inflation.”

At the same time, Legarda pointed out that the single-biggest driver of unusually high inflation since March was not elevated oil prices, but the surge in the cost of rice, due to previous reports of massive shortages of the staple. “Food-price inflation has definitely been driving up the overall inflation rate. And the only way we can fight this is by producing more food more efficiently.”

She said the extra P15.6 billion needed to adjust the public-spending program to higher prices could erode any extra value-added tax (VAT) revenues that the government hopes to collect this year. The government collected a total of P53.31 billion in VAT revenues in the first six months to June—P9.6 billion or 18 percent higher than the amount generated over the same period in 2007.

Meanwhile, in the face of the global economic slowdown, especially in the Philippines’ main trading partners, the National Economic and Development Authority (Neda) remains confident the P1.4-trillion budget for 2009 will be enough to attain growth at a range of 6.1 percent to 7.1 percent.

Neda Director General Recto said next year’s budget is 15 percent higher than this year’s and will be able to fuel the desired economic advance amid difficulties.

Apart from a higher budget, Recto said what would help work for the country is higher absorption by departments of their budgets, so that all planned projects are sufficiently financed.

“The key is to get departments to spend their budgets. The biggest chunk of the budget will go to the Department of Public Works and Highways, then to the Department of Agriculture and Department of Agrarian Reform combined, followed by the Department of Transportation and Communications, Department of Education and the Autonomous Region in Muslim Mindanao,” Recto said.

Recto expects the 2009 budget to significantly contribute to economic growth since most of the spending plans are for infrastructure—about 22.2 percent of the entire budget.

On factors that affect growth, Recto said the Development Budget Coordination Committee (DBCC) sees inflation to hit 6 percent to 8 percent next year, still due to higher oil prices.

Recto said the government sees oil prices playing within the range of $115 to $125 per barrel while the peso is projected to average P45 to a dollar.

Interest rates, on the other hand, will be within the range of 5 percent to 6 percent in 2009 while exports and imports are seen to hit 7 percent and 10 percent, respectively.

Earlier, Recto said high inflation has forced the Neda to decrease its forecast for the second quarter this year to lower than the 5.2 percent posted in the first quarter of the year.

Recto said high oil prices in the second quarter, when rice prices increased to almost P50 per kilo, will result in lower growth.

The DBCC recently slashed the growth targets for 2008 to 5.5 percent to 6.4 percent. Initially, the target was pegged at 5.7 percent to 6.6 percent.

Recto sees the second half of the year as better than the first half because the effects of high oil prices in the second quarter will be blunted by spending in preparation for the holidays, and the expected higher remittances of those working abroad.

The National Statistical Coordination Board (NSCB) will release the second quarter figures on Thursday, August 28, in Makati City.

Source: Butch Fernandez and Cai U. Ordinario