High court’s DAP ruling seen to hurt economy

Further government underspending arising from the Supreme Court’s ruling that the Executive Department’s Disbursement Acceleration Program (DAP) is unconstitutional may exact a heavy toll on the country’s economic growth this year, according to economists from New York-based think tank Global Source.

Combined with the adverse impact of the truck ban in the City of Manila, the “chilling effect” of the DAP decision may lead to a decline in the country’s gross domestic product this year to 5.8 percent, said Global Source, which lowered its 2014 forecast from 6.1 percent.

“We think the setback caused by the Supreme Court decision on public spending, as well as the slowness in decongesting the Port of Manila, threatens third quarter 2014 economic growth. This … will pull down our full year forecast,” Global Source economists Romeo Bernardo and Marie-Christine Tang wrote in a research note dated July 17.

Global Source has expressed its concern that government spending may further slow down, while state auditors take a closer look at public projects and transactions.

“The Executive’s lost flexibility in funding within-year spending priorities from identified savings tell us that government outlays will again fall below program this year,” the think tank said.

Already, Global Source noted that first quarter non-interest expenditures had fallen below target by almost 20 percent whereas cumulative April-May second quarter non-interest spending declined by 4.6 percent year-on-year.

“Although we had expected underspending at the start of the year, we were looking at a J-curve recovery by the second half as government officials ironed out kinks and cleared away bottlenecks, particularly in reconstruction and rehabilitation activities. We are less confident of that happening now,” Global Source said.

“While critics of the DAP have cast doubt on its stimulative effect on the economy, there is no question that past quarters’ stellar GDP growth owes no small amount directly to overall government consumption and construction investments,” it added.

Global Source said that the rising share of infrastructure outlays in government expenditures, albeit still quite low, was especially vital in permanently pushing growth to a higher trajectory.

Apart from government underspending, Global Source also cited the cost of what it deemed as “unmanaged fallout” from the truck ban in the City of Manila, where the country’s biggest international cargo port is located.

“Over a month after the local government allowed a 24-hour lane dedicated to trucks, cargo backlog continues to clog the port. In addition to increased logistics costs that affect the prices of a wide array of raw materials and end-user goods, traders are complaining of supply shortages as inbound shipments are delayed by as much as six weeks, and delays in export shipments that will have repercussions on local manufacturers’ reputation for on-time delivery,” Global Source said.

It added that foreign shipping lines have also refused to call on Manila due to the delays.

“But not all is lost,” the think tank said.

“While we do not expect the high court to reverse its unanimous decision, we expect the President to soon submit, and Congress to pass, a supplemental budget for this year that would allow the executive to push forward with its programs and catch up on some of its spending priorities in the fourth quarter of 2014.”