At a modest 5.9%, Economic growth in the Philippines for 2019 was the slowest recorded growth in 8 years. Whilst this figure dwarfs the growth rates for developed economies, 5.9% is considered too little for a developing country like the Philippines who were targeting a 2019 growth rate of 7 to 8 percent.
The smaller than expected growth figure was largely attributed to delays on large government funded infrastructure projects which were designed to boost the Philippine economy. In recent years, government has been spending big on public goods and services, providing various employment opportunities throughout the economy. It comes as no surprise then that the Philippines has recorded a budget deficit in every year since 2010, with the 2018 figure equal to -3.2 of GDP.
Philippines Government Budget 2010-2018
source: tradingeconomics.com
For those new to the term, a budget deficit means that total government spending in the economy was greater than all of the government revenue received from tax and other sources of income in a given year. Whilst a budget deficit can indicate low taxes and that the government is contributing greatly to economic growth and development, a persistent deficit in the long-term can offset the benefits accrued by leading to inflation and high levels of government debt.
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term budget deficit?
Q2. Explain why high levels of government spending can lead to economic growth.
Q3. With reference to the article and data above, assess the impact of a persistent long-term budget deficit on an economy such as that of the Philippines.
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