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The International Monetary Fund (IMF) may cut its 2014 growth forecast for the Philippines this week due to recent data that showed a slump in government spending, which has been tagged as crucial to driving economic activity.
A rare government budget surplus was recorded in the first five months of the year—a result of both higher revenues and a marginal decline in disbursements. This came amid the need to spend aggressively, particularly for rehabilitation efforts in areas devastated by Supertyphoon “Yolanda” last November.
“Slower disbursements in the second quarter may not support growth as much,” IMF Resident Representative for the Philippines Shanaka Jayaneth Peiris said. “The pace of spending pickup, particularly reconstruction activities, will have a bearing on the annual growth outcome,” he said in an e-mail to the Inquirer.
First quarter gross domestic product (GDP) growth slowed to a disappointing 5.7 percent from 6.3 percent in the fourth quarter of 2013. In the first quarter of 2013, growth reached 7.7 percent.
The IMF is publishing its revised World Economic Outlook (WEO) report this week. In its last WEO last April, the IMF said it saw the Philippine economy growing by 6.5 percent, which matches the lower end of the Aquino administration’s target range that goes up to as high as 7.5 percent. Last year, the economy grew by 7.2 percent.
Peiris said several other issues needed to be addressed to boost growth in the coming months. Electricity generation due to maintenance shutdowns and adverse weather weighed on the economy in the first quarter, he said. Another constraint was poor infrastructure surrounding Manila’s port area, through which bulk of international freight enters the country.
Amid the slowdown in spending, Peiris said officials at the bureaus of internal revenue and of customs needed to sustain their efforts to raise revenues.
He said the government would need all the money it could get to fund expensive infrastructure and social welfare projects.
“There is a current fiscal surplus mainly because spending is running below target but significantly higher revenues as a percent of GDP would be needed to meet the medium-term spending and deficit targets,” Peiris said.