Anemic gov’t spending slows Q1 GDP growth to 3-year low of 5.2%

PERSISTENT delays in the implementation of vital infrastructure projects intended to support an expanding economy slowed the growth of the country’s gross domestic product (GDP) during the first quarter to a disappointing 5.2 percent — the lowest rate since 2012.

The first quarter GDP growth figure was below the 6.6-percent expansion posted in the fourth quarter of last year, as well as the 5.6-percent growth rate registered during the January to March period in 2014. Economic managers had attributed the slower growth in the first quarter of last year to the effects of super-typhoon “Yolanda” (international name: Haiyan), which flattened central Philippines in November 2013.

But this time, while efforts to improve tax collection have been bearing fruit and have effectively increased government revenues, agencies were still being found lacking in terms of spending these resources on public goods and services— a problem that the Department of Budget and Management (DBM) earlier said it has been addressing since 2014.

“While growth in the private sector remains robust, the slower-than-programmed pace of public spending, particularly the decline in public construction, has slowed down the overall growth of the economy,” Socioeconomic Planning Secretary Arsenio M. Balisacan told a press conference on Thursday, which was slightly interrupted when the official had to answer a telephone call from President Aquino in the middle of the question-and-answer session with media.

Government data released early this week showed that between January and March, the government again failed to spend as much as it should on public goods and services, as expenditures rose a mere 4 percent year-on-year to P504 billion, which was 13-percent below the P582.2-billion spending goal.

In 2014, government underspending was largely blamed for 6.1-percent GDP growth, which was less than the 6.5-7.5 percent target for the year. The government had attributed last year’s anemic spending to the “chilling effects” of a Supreme Court decision deeming as unconstitutional the controversial Disbursement Acceleration Program earlier introduced by the Aquino administration to fast-track expenditures funded by government savings.

Budget Secretary Florencio B. Abad had pledged to reverse such trend, claiming that the Department of Budget and Management (DBM) has been improving spending processes in order to facilitate faster disbursements.

Collections of taxes and other revenues during the first quarter, meanwhile, jumped by a robust 18 percent to P470.5 billion, indicating more money in government coffers.

But Balisacan, also the director-general of the state planning agency National Economic and Development Authority (NEDA), maintained that “the missed opportunity to have a higher growth [during the first quarter] is not totally foregone as we still expect public spending to pick up for the rest of the year.”

“According to the latest report of the DBM, the disbursement performance for the first three months of 2015 shows a trend towards faster government spending. If this disbursement trajectory is sustained and reflected in all government agencies, the higher government spending will fuel even more activities in the private sector, and thus push economic growth in the next quarters of the year,” Balisacan said.

The economy must grow by 7.5 percent during each of the three remaining quarters of the year for the government to hit the lower end of its 7-8 percent growth target for 2015 — something that is “not impossible” to be achieved, according to Balisacan.

“The growth performance in this quarter tells us that there are still issues that the government needs to confront in order to maintain the high level of confidence that the business sector is showing and entrusting the country. Therefore, we are keeping a careful watch over the spending performance of the agencies to ensure that implementation bottlenecks are being addressed and the execution of programs and projects will not be further delayed,” Balisacan said.

Moving forward, the NEDA chief said “it is reasonable to believe that the economy will grow at a faster rate in the remaining quarters,” hence the government would stick with its full-year GDP growth goal.

Balisacan pointed out that “amid the challenges that government continues to face, we must keep in mind that the economic performance in the first five years of this administration remains the highest five-year growth average recorded by the country since the mid-1970s—a testament to the private sector support for the governance and economic reforms that we have been implementing.”

But business groups warned that weakening economic growth might temper investor interest in the Philippines.

In recent quarters, the Philippines’ GDP growth rates were perennially second-fastest in the region, next to those of China, but the country fell behind Malaysia and Vietnam in economic expansion during the first quarter.

“Slowing growth will weaken the perception of a dynamic Philippine economy,” John D. Forbes, American Chamber of Commerce of the Philippines senior advisor, said in a text message.

“Inadequate public spending, port congestion issues and outdated infrastructure are challenges that must be addressed to maintain investor confidence and to raise the GDP growth rate above 7 percent,” Forbes added.

“Infrastructure spending needs to be accelerated, and limitations on the involvement of foreign construction investors should be removed now,” said Henry J. Schumacher, executive vice president at the European Chamber of Commerce of the Philippines.

Management Association of the Philippines president Francisco F. Del Rosario agreed that the country could achieve its GDP growth goal “by increasing infrastructure spending.”

Employers Confederation of the Philippines president Edgardo G. Lacson noted that “since the GDP is a function of spending, the government must accelerate the execution of the public-private partnership or PPP infrastructure projects to generate employment and stimulate the economy.”

“With seven months left in the year, there is ample time to recover the slowed spending momentum,” Lacson said. SFM/ABC