Infra projects front-loading ahead of elections to aid economy in 2021

Ramping up spending on infrastructure and other public goods and services ahead of the election ban would aid economic recovery this year, even as slow mass vaccination remains the top hindrance to the Philippines’ quick rebound from recession, UK-based Pantheon Macroeconomics said.

“Capex (capital expenditures) will probably receive a lift from projects being front-loaded ahead of the May 2022 elections,” Pantheon Macroeconomics senior Asia economist Miguel Chanco said in their second-half outlook report for emerging Asian economies.

Government agencies cannot start new projects starting March up to the elections on May 9, 2022.

Ahead of the election ban, the Cabinet-level Development Budget Coordination Committee (DBCC) had programmed to ramp up disbursements to P2.29 trillion in the second half of 2021.

Of the P1.02-trillion infrastructure program for this year, P451.15 billion worth will be rolled out in the second semester.

Poorer prospects in H1 2022

But Chanco said front-loading implementation of government projects before the national polls “will come at the expense of the first half of 2022, and the slump in corporate loans points to continued softness thereafter.”

Elections in the past contributed to economic growth during election years, but recent polls showed diminishing contribution to gross domestic product (GDP) as national output became broader-based.

For 2022, the DBCC targets a 7 to 9 percent GDP growth, faster than this year’s 6 to 7 percent goal.

However, Pantheon Macroeconomics was less optimistic about growth this year and next with the nationwide inoculation drive hitting snags.

“The Philippines risks becoming a basket case, as it is unlikely to reach herd immunity until 2023. We are the least confident about this projection, due to the country’s high vaccine hesitancy. The domestic outlook remains bleak,” Chanco said.

The think tank projected 2021 GDP to grow 6.6 percent, or within the government’s target range, after last year’s record 9.6 percent GDP decline. Next year, GDP growth was seen slowing to below-target 4.4 percent.

“Consumption is unlikely to find meaningful support from remittances; growth is likely to stay subdued, due to the still declining number of overseas workers. Households are looking to rebuild savings, after last year’s substantial drawdowns,” Chanco said.

“A reacceleration in inflation, on the back of the lagged pass-through of rising oil prices, will add insult to injury in the rest of 2021, a threat the BSP [Bangko Sentral ng Pilipinas] continues to downplay,” Chanco said.