Government seen to miss goals despite election spending

By Luis Leoncio 

The government will widely miss its forecasts in 2015 and this year due mainly to troubles brewing in major economies and the chronic underspending of the current administration. 

Contrary to the 6-percent government growth projection for last year, the World Bank expects the country’s growth at 5.8 percent; the Asian Development Bank (ADB) at 5.9 percent while former Budget Secretary Benjamin Diokno expects that gross domestic product (GDP) growth in 2015 would not be much different from the first-three quarters’ growth of 5.6 percent.

“What little progress has been made on the government-spending side will be offset by weak exports and the destruction of personal property, farm outputs and public infrastructure by two damaging typhoons, Nona and Onyok, in late December 2015,” Diokno said.

He added that except for election spending, there would be no new sources of growth this year, as the world economy remains gloomy.

The government’s target of a 7.5-percent to 8.5-percent GDP growth this year is simply unattainable, Diokno said.

The World Bank, in its Global Economic Prospects Report, sees growth at 6.4 percent this year, while ADB foresees 2016 growth at 6.3 percent in its Asian Development Outlook supplement.

The Metro Bank Group’s investment banking arm, First Metro Investment Corp., gave almost a similar growth forecast for this year at 6 to 6.5 percent—still lower than the government target.

First Metro Investment Corp. President Rabboni Francis Arjonillo said the outlook for the Philippines remains optimistic but guarded because of some uncertainties in the local financial markets and global economic weakness.

Arjonillo said growth would depend on the faster implementation of public infrastructure projects, continuing private construction, strong domestic consumer demand, heightened election-related spending and better exports.

He said the robust overseas Filipino workers (OFW) remittances and business process outsourcing (BPO) sectors, coupled with low inflation environment, would fuel more consumption spending.

Dr. Victor Abola, economist at University of Asia and the Pacific (UAP), said infrastructure spending is expected to increase this year to P824 billion or about 5 percent of GDP.

He expects election spending to contribute 0.5 to 1.5 points to economic growth, and the increased spending, along with public-private partnership (PPP) projects, is imperative for the country to catch up on its infrastructural needs.

“In general, election year is positive,” he added.

Abola sees domestic demand growing 10 percent in 2016, from last year’s 8.5 percent, boosting economic recovery.

Nonetheless, the World Bank said the Philippines and Vietnam are among the countries with the strongest growth prospects.

“In the Philippines, growth is projected to firm up to 6.4 percent in 2016, reflecting accelerated implementation of public-private partnership projects and spending related to the May 2016 presidential election,” the World Bank report said.

Diokno added that the country’s potential sources of growth —manufacturing and construction—are losing steam.

“From a peak of 10.3-percent growth in 2013, it expanded by only half, by 5.4 percent in 2015. Manufacturing will continue to struggle as the world economy starts to stall. Exports declined sharply in 2015, and recovery remains uncertain in 2016, as the economies of China, most of Europe, and a large part of the oil-producing countries continue to slow down,” he said.

He said growth in construction may appear sustainable, although slowing.

“From a peak of 14.4-percent growth in 2012, growth has progressively declined to 8.9 percent growth in 2015,” Diokno said.

Diokno also said that from a public-policy standpoint, it would be a mistake to assume that the higher budget authorization for public infrastructure, as provided for in the 2016 budget, would automatically translate into higher spending for capital projects.

“There is an election ban on new construction 90 days before the May 9 national and local elections, and it is hard to imagine that inept public officials and bureaucrats would suddenly become paragons of efficiency overnight,” he said.

Diokno added that with the likely change in political leadership after the 2016 elections, bureaucrats would be extra cautious in acting on their assigned tasks for fear of missteps in the performance of their respective responsibilities.

There is also a built-in delay for new construction as the new set of leaders assumes office.

“It is reasonable to expect that the incoming President will spend at least two—perhaps four —quarters reviewing and assessing the programs and projects initiated by his predecessor,” he said.

“In sum, from 2011 to 2016, the Aquino administration would likely register an average GDP growth rate of 5.8 percent. That’s neither spectacular nor shabby. But this middle-of-the-road performance has barely made a dent on the high poverty incidence in the country, which is direct proof that growth under the present administration was not inclusive,” Diokno said.

The World Bank added that foreign direct investment (FDI) inflows to large East Asia Pacific economies remained generally robust in the first half of the year, rising

in all large countries, except the Philippines, in year-on-year terms.

“In the Philippines, FDI has lagged, partly owing to regulatory restrictions,” the World Bank report said.