Balisacan: State spending still has room to grow

MANILA  -Government spending still has room to grow and significantly contribute to growth in the fourth quarter when state workers typically receive their Christmas bonuses and consumption is strong, with Socioeconomic Planning Secretary Arsenio Balisacan staying optimistic that the Marcos administration’s growth ambitions this year remain “doable”.

“It’s still doable there’s still much space for the acceleration of government spending which hounded the performance in the first half of the year,” Balisacan told businessmen at a government roadshow in the U.S. on Thursday (Manila time).

Data showed government spending grew 6.7 percent year-on-year in the third quarter, reversing the 0.7-percent slump in the preceding three months.

READ: Infra spending surged in Sept to P139.1B

That growth was responsible for 36 percent of the faster-than-expected gross domestic product expansion of 5.9 percent in the third quarter, picking up the slack from weakening consumer spending, a traditional growth driver.

Balisacan did not say what would give government spending a last-minute impetus to muster up growth in the remaining months of the year. Infrastructure spending is seasonally high during the summer months when cement dries quicker, before typhoons that visit the country in the second half of the year hamper construction activities.

However, there’s a typical surge in personnel costs during the fourth quarter as government workers receive their Christmas bonuses. Last Wednesday, the budget department said it has started the release of year-end bonus and cash gift for state employees amounting to P69.4 billion.

But Dr. Leonardo Lanzona, economist at Ateneo De Manila University, warned that strong fiscal spending at this time might do more harm than good for the economy by potentially fanning inflation.

READ: PH budget deficit shrank by 45% in July

Many economists believe that a robust state spending would put more money in people’s pockets, which could boost demand for goods with limited supply and stoke inflation. The uptick in inflation, in turn, could result in higher borrowing costs that can crimp both consumption and investments.

“There may be some mild rises in inflation already because of the government’s splurge last quarter,” Lanzona said. “Unless these spending raise productivity, continued increases in government expenditure will cause the economy to overheat, thus resulting in lower growth or possibly a recession.”