The Market Monitor Minding the Nation's Business
By Rose de la Cruz
Between now and the midterm election on May 12, 2025, we will expect to read numerous reports about importations of all types of goods– mostly agricultural products– since these are a rich mine of instant cash for those planning to run next year.
Expect also the rush in infrastructure projects– roads that are not broken but would undergo fixing (since contractors would only be too willing to part with a portion of their contract price and commissions to politicians who would approve the project), schoolbuildings, nutrition and healthcare programs (to boost the power of recall from voters) and so many other gimmicks.
And lest we forget, our vision of sceneries and roads would be hampered by big streamers and tarps of candidates and hiring by candidates of temporary employees as campaigners and election booth inspectors who would only bar the voters from a time of peaceful introspection of worthy candidates to vote for.
All these activities would naturally add up to an election overspending– whether public funds (by those currently in power) or private funds (which is more dangerous as there is a time for payback once the candidate wins).
Already, some analysts are raising the flag about a possible wasteful spending ahead of the elections by the government, which expectedly would put in billions to entice voters to vote for the bets of those in power.
The ability of incumbent politicians to boost public spending or money aggregates to satisfy voters could stoke inflation, analysts added.
“Sitting politicians may use government funds that are directed toward influencing voting preferences… this is assumed to cause a surge in infrastructure projects, provision of goods, and proliferation of services-based initiatives,” Arjan P. Aguirre, who teaches political science at the Ateneo de Manila University, told Business World.
The midterm elections would select senators, congressmen and local officials (all the way down to the barangays and SKs or Sangguniang Kabataan).
With elections still less than a year away, there has been a noticeable increase in state spending on infrastructure so far this year.
State spending on infrastructure and other capital outlays jumped by 20.6 percent to P611.8 billion in the first half of 2024 from P507.2 billion a year ago, as the Public Works and Transportation departments sought to speed up completion of projects, Business World noted.
“Road and bridge constructions and rehabilitation, medical assistance and missions, educational allowances and scholarship funds, and feeding projects tend to rise in election years,” Aguirre said.
The Commission on Elections (Comelec) puts in place a ban on the release, disbursement and spending for public works and social welfare projects ahead of elections. The Comelec has set the election period from Jan. 12 to June 11, 2025.
RCBC chief economist Michael L. Ricafort said he expects infrastructure spending to rise further in the second half.
“A possible increase in government spending to prepare for the May 2025 midterm elections could already start in the latter part of 2024, accelerating government spending on infrastructure and other projects, which could be a source of additional growth for the local economy,” he said.
The Philippine economy often sees a boost in years when there are elections, especially presidential polls, said John Paolo R. Rivera, senior research fellow of state think tank Philippine Institute for Development Studies.
“An election season usually boosts economic growth figures due to campaign spending of all candidates including their donors, supporters, and benefactors,” he said in a Viber message, attributing it to heightened consumption.
Philippine gross domestic product (GDP) in 2022 — a presidential election year — grew by 7.6 percent from 5.7 percent in 2021.
In 2016 when presidential elections were also held, GDP expanded by 7.1% from 6.3 percent in 20215.
The bulk of economic activity during election years are from industries that mobilize and support election efforts, including “public relations firms, manpower services, air and land transportation, and food services,” said Aguirre.
Ricafort said companies involved in consumer goods, fastfood and media also typically see a boost during elections.
Increased spending by politicians ahead of or during elections may also fuel inflation.
Candidates gunning for a government post also ramp up spending on campaign materials and advertisements to improve their chances of being elected, Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, said.
“The most likely result is inflation and wasteful spending that could have gone to more productive programs,” he said, referring to spending by politicians.
He said the widespread but illegal practice of vote buying during elections could also fan inflation.
“The informal sector is the recipient of all these dole outs… as a collective, this will contribute significantly to greater inflation,” Lanzona said.
The central bank sees inflation averaging 3.4 percent this year and 3.1 percent in 2025.
The government should strictly monitor the campaign finances of election candidates, Mr. Lanzona urged, citing that most of them are not following a 1991 law that limits election spending.