The Market Monitor Minding the Nation's Business
By Luis Leoncio
Despite repeated warnings from economists and other experts, the Aquino administration continues to underspend and as a result, the gross domestic product (GDP) expanded a disappointing 5.2 percent in the first quarter, the slowest pace in three years.
The first-quarter GDP-growth figure was down from 5.6 percent a year earlier and 6.6 percent in the last quarter of 2014.
Socioeconomic Planning Secretary Arsenio Balisacan, also the director general of the National Economic and Development Authority, admitted that said the slow pace of public spending, particularly in construction, resulted in growth that was lower than government and market expectations.
But he remained hopeful that the economy will expand faster in the coming months as public spending picks up.
Former Budget Secretary Benjamin Diokno said the administration should also be as quick in admitting responsibility for the slowing pace of economic growth, as it has been in claiming credit for past stellar growth reports.
The GDP numbers reflected the “big gap between what the administration promised and what it actually did on the ground,” Diokno, now a professor at the University of the Philippines School of Economics.
“Officials of the Department of Budget and Management (DBM) boasted that after five years they finally got it right. The administration is spending what has been budgeted for capital outlays much faster. That’s what their press releases say. Clearly the government continues to underspend and it shows in the weaker GDP growth. Capital formation is down by 4.9 percent,” Diokno said.
Moreover, government construction plunged by 24.6 percent in the first quarter of 2015.
Diokno said the sharp fall in government spending is surprising since public construction is usually strong on the first quarter of the year, perhaps owing to the more aggressive public construction during the second half of the year.
In the first three months of 2013, public construction grew 41.3 percent while in the same period of last year, it expanded by 17.5 percent, Diokno said.
“The more optimistic forecasters, government policy makers included, may have to revisit their rosy GDP forecasts. In order to meet the official GDP forecast of 7 to 8 percent this year, the Philippine economy has to grow from a low of 7.6 percent to a high of 8.9 percent during the rest of the year. That’s quite a tall order,” he said.
The government admitted that its sluggish spending was responsible for the weak economic growth in the first quarter.
The 5.2 percent GDP growth in the first quarter was down from 5.6 percent a year earlier and 6.6 percent in the last quarter of 2014.
Balisacan said the slow pace of public spending, particularly in construction, resulted in growth that was lower than government and market expectations.
Balisacan also said the economy is expected to expand faster in the coming months as public spending picks up.
Decades of corruption in government, and vulnerability to natural disasters such as typhoons, have meant the Philippines lagged other Southeast Asian nations such as Thailand, Malaysia and Singapore in economic development.
Finance Secretary Cesar Purisima said the government was “less concerned” about the quarterly figures “than getting the foundations of our growth right.”
“It is not always easy or fast, but growing with the right foundations makes our trajectory more sustainable,” Purisima said. “We are cognizant of the opportunities ahead and will resolve to boost government capacity to spend at the right pace.”
Despite the lower-than-expected GDP figure, Purisima said that, among the five biggest Southeast Asian economies, the Philippines was still the second-fastest growing economy in the first quarter, after Malaysia.
Balisacan said growth over the past five years “remains the highest” recorded since the mid-1970s, despite the first-quarter slowdown.
With a national population of 100.9 million, per-capita GDP growth declined to 3.4 percent from 3.8 percent.
Service industries contributed the most to GDP growth, accounting for 3.1 percentage points followed by industry’s 1.9 percentage points and 0.2 percentage point from agriculture.
“Despite this lower-than-expected growth, it is reasonable to believe that the economy will grow at a faster rate in the remaining quarters,” Balisacan said.
He said the DBM has reported a “trend toward faster government spending.”
Questions posed to Abad
Diokno, however, raised several questions on the budget handling of the Aquino administration: “Has the DBM prepared the budgets well? If the budgets were well prepared how come they were not implemented fully? Isn’t the DBM supposed to evaluate absorptive capacity of implementing agencies? Why give a department, say, P100-billion allocation, when, in fact, it is able to spend only about half of that amount?”
He added Aquino’s spending pattern from 2011 to 2014 is illustrative of a serious case of government incompetence.
“I compared programmed government spending net of interest payments with actual spending. I netted out interest payments because it is automatically appropriated, it is generally overstated to create a ‘buffer’ for likely revenue under-collection, and, more importantly, interest payments do not really constitute government purchase of goods and services,” he said.
The total underspending from 2011 to 2014 was a huge P529 billion, more than half a trillion pesos, Diokno said.
“In the midst of severe unemployment, poverty and hunger, such mammoth underspending is unacceptable. The adverse long-term consequences of such underspending transcend the present administration,” Diokno added.
Budget Secretary Florencio Abad issued the excuse that broad structural reforms and greater inter-agency cooperation is expected to improve the productive spending clip of government from the yearly budget.
“President Aquino’s order for more efficient spending was a direct result of last year’s spending shortfall, and not of slow spending in the first three months of 2015. The year 2014 was a most instructive one for us. We have since designed strategic fixes for the bureaucracy’s structural weaknesses, which were getting in the way of efficient spending,” Abad said.
“The creation of A.O. No. 46 is meant to be a sustainable solution for better spending and cooperation among government agencies. It’s a solution that should work this year and beyond, and not just on a piecemeal basis,” he added.
“The Bureau of the Treasury’s (BTr) transition to a more open and transparent reporting system will help us gather data faster and more accurately. As a result, we expect to gain quicker access to key fiscal management information, which will in turn help us in developing responsive budget policies and measures,” Abad said.
The DBM publishes reports on the status of allotment releases and of utilization of Notices of Cash Allocation (NCA) every month.
Meanwhile, BTr issues the Cash Operations Report (COR), which comprises figures on cash receipts, disbursements, and the resulting surplus or deficit.
“Aside from A.O. No. 46, the budget reforms that we’ve been pursuing will cure the structural problems and spending bottlenecks that have hampered agency spending all these years. We thus look forward to stronger government spending this year, in line with the Administration’s drive for greater economic expansion and inclusive growth,” Abad said.