In defense of the Holy Fiscal Deficit: Accounting and economics

Part Ill: Fiscal discipline and responsibility or nation building?

- By Jesus Felipe and Mariel Monica Sauler

WE END with a plea to all the sectors that believe that fiscal deficits damage the economy.

While this might be true in some special circumstances, these do not apply to our economy in general. Moreover, our monetary system and overall conditions are very different from those of the 1980s. Let's abandon once-and-for-all the orthodoxy that has prevailed in the country for decades.

The business community should understand that a deficit increases the net worth of the private sector, as it receives more than it pays in taxes. Don’t shoot yourself in the foot. Also understand what terms such as “debt” and “interest payments” really mean for you when you purchase T-bills. The fiscal partner can be a great partner if you understand her.

Government officials should understand the economics behind the sectoral balances, gain a holistic view of what all relevant agencies and the Bangko Sentral ng Pilipinas (BSP) do, and understand that their job is not to match spending and taxes. Bond issuance is part of it. Bond dealers in the private sector will purchase the bonds that the Treasury offers them. As a consequence, lowering the fiscal deficit to 3% of GDP is not a meaningful target as it will reduce the nation’s policy space, as long as we run a current account deficit.

Finance professionals should go beyond the financial side of the economy (interest rates, exchange rates) and understand the role their sector plays when the Treasury and BSP auction T-bills, the reason why their institutions buy T-bills, and what these do on their balance sheet.

Economics journalists have a responsibility to gather, verify, and report accurate, unbiased, and timely information to the public, Tell those who watch your programs or read your newspapers that the average Filipino does not owe P130,000 to anybody.