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DoF: Low 2nd quarter growth not unexpected

Finance Secretary Carlos Dominguez III said the growth of 5.5 percent in the second quarter was not an unexpected result given the residual effects of the four-months-and-a-half delay in the passage of the 2019 national budget by the House of Representatives.

Dominguez remains hopeful that economic growth could hit the 6-percent territory in the coming quarters as the Duterte administration’s catch-up spending strategy picks up in the third and fourth quarters.

He also sees growth partly driven in the year’s remaining half by stronger domestic consumption amid the continued slowdown in headline inflation, which fell to a 31-month low of 2.4 percent in July.

The slowdown in commodity price growth was brought about in part by the decisive measures taken by President Duterte since last year to ease food supply bottlenecks and stabilize prices, including the enactment of the rice tariffication law that has thus far slashed the retail cost of the staple by about P7 to P10 per kilo.

“Second-quarter growth was not an unexpected result given the apparent lingering impact on the government’s accelerated spending program of the four months-and-a-half delay in the passage of the 2019 budget in the House of Representatives. This delay was further exacerbated by the ban on infrastructure projects during the election campaign,” Dominguez said.

He likewise noted that the Implementing Rules and Regulations (IRR) on the 2019 General Appropriations Act was released only in the last week of May.

Dominguez said the carryover to the April-June period of the effects of the first-quarter budget delay points to “the pernicious impact on the domestic economy of the undue delay in the approval by the House of the national budget, more so in the midst of an unprecedented aggressive public spending program to stimulate high— and inclusive—growth. Let this be a stark reminder to our lawmakers as to why they should avoid any delay in the approval of the 2020 GAB (General Appropriations Bill).”

But he is optimistic there wouldn’t be a repeat this time around of the 2019 budget delay given the commitment of both Senate and House leaders to pass their consolidated GAB version on time, and this week’s agreement by Malacañang and the Congress to work closer on the passage of the budget bill and other priority measures via the Legislative-Executive Development Advisory Council (LEDAC) route.

The Finance Secretary said the government’s catch-up spending plan—it was put in motion following President Duterte’s signing of the 2019 General Appropriations Act (GAA) only on April 15—was designed to provide a strong stimulus to higher growth for the rest of the year.

It aims, he said, to accelerate disbursements and speed up the implementation of projects in order to reverse the public underspending in the first quarter as a result of the budget delay.

“For instance, in infrastructure—with its multiplier effects on growth—the bulk of the disbursements in the year’s second semester is expected to keep economic expansion on a higher plane, barring obstacles such as erratic weather disturbances,” Dominguez said.

Given the constraints, though, he said the President’s economic team had managed to carry out the catch-up spending plan only starting the last week of May when the IRR of the 2019 budget was released.

He said the President’s economic team would look out for other possible downside risks that could weigh on growth in the second semester, such as the escalating trade war between the United States and China and weak farm production.

Dominguez recalled that as a result of the congressional standstill for four-and-a-half months at the outset of 2019, the government has had to operate on a reenacted 2018 budget for that period, forcing it to hold off on the implementation of new and continuing programs and projects that could have further revved up economic growth in the year’s first two quarters.

This resulted in government underspending equivalent to P80 billion to P90 billion for the first quarter alone, he said.

Dominguez said the catch-up spending strategy was anchored on matching the continued improvement in state revenue collections with a corresponding improvement in government disbursements on infrastructure modernization and expanded social services, in step with President Duterte’s commitment to improve the lives of all law-abiding Filipinos.

Department of Budget and Management (DBM) data bared that owing to the four-month budget delay, however, public spending on capital outlays over the January-June 2019 period only reached P377.5 billion as against programmed funds of P478.7 billion, or an underspending of P101.2 billion.

Of this amount, infrastructure spending during the first semester only reached P311.4 billion as against the programmed allocation of P392.9 billion, or an underspending of P81.5 billion.

Because of the Tax Reform for Acceleration and Inclusion (TRAIN) Law plus reforms in tax administration, total revenues from January to June 2019— according to the Bureau of the Treasury (BTr)—amounted to P1.547 trillion, or 9.71 percent or P137 billion higher than the P1.410 trillion collected in the same semester last year.

Collections by the Bureau of Internal Revenue (BIR) amounted to P1.066 trillion in the first semester, about 10.56 percent or P101.8 billion higher than the take in the same period last year; while collections by the Bureau of Customs (BOC) hit P303 billion in the first semester, about 8.45 percent or P23.6 billion above the midyear outturn in 2018.

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