Franco Uccelli of Bear & Stearns comments today on the Central Bank’s recently released first-quarter figures that indicate the need for reductions in government spending.
According to the Central Bank report published over the weekend, the nation has recorded a non-financial public-sector (NFPS) deficit of RD$12.5 billion (3.5% of Gross Domestic Product), a quasi-fiscal (Central Bank) deficit of RD$14.1 billion (4.0% of GDP), and a consolidated public-sector deficit of RD$26.6 billion (7.5% of GDP) during the first half of the year.
Uccelli writes that “after the former Mejia administration missed its key IMF fiscal targets for mid-year, the new Fernandez administration is now determined to generate an annualized fiscal adjustment equivalent to some 4% of GDP, the result of 2.5% of GDP in additional revenues, which are contingent on the approval of the fiscal reform currently under congressional consideration, and 1.5% of GDP in reduced expenditures.”
He comments on the positive signs of stronger-than-expected growth (the economy expanded by 0.8% in the first quarter of 2004 in the wake of 2.2% growth in the second quarter), the recent appreciation of the peso and a tighter fiscal stance, which factors should collectively ease the pressure on the country’s fiscal accounts during the second half of the year. Nevertheless, he concludes that “delays in the implementation of the government’s fiscal reform plan and the country’s inherent fiscal rigidities will likely make recording a consolidated public sector deficit for 2004 of less than 5.7% of GDP very unlikely.”