By Cai U. Ordinario
The national government again failed to deliver on its promise to ramp up its construction spending, dragging down the economy’s growth anew—this time to its slowest pace in almost four years—in the January-to-March period.
The economy only grew 5.2 percent in the first quarter of 2015, the slowest since the last quarter of 2011, when the country’s gross domestic product (GDP) grew 3.8 percent, and the government admitted it was largely due to its underspending.
“The slower-than-programmed pace of public spending, particularly the decline in public construction, has slowed down the overall growth of the economy,” Economic Planning Secretary Arsenio M. Balisacan said.
“[Further] the recent uptick in disbursements from the Department of Budget and Management has not yet been reflected in the national income accounts,” he added.
With the disappointing result in the first three months of the year, the economy must now post an average of 7.5-percent growth in the second to fourth quarters to hit the government’s full-year target of 7 percent to 8 percent. The consensus estimate given by private economists on the first-quarter growth was 6.6 percent.
“This is a very weak set of numbers,” said Michael Wan, an economist at Credit Suisse Group AG in Singapore. “Industrial production, government spending were a drag to the economy. Moving forward, I would be biased to look past this weakness. The macrofundamentals are intact and the Philippines compares more favorably to other Southeast Asian countries.”
Data from the Philippine Statistics Authority showed that public construction contracted 24.6 percent in the first quarter this year, from a growth of 17.5 percent in the same period in 2014.
Apart from the contraction in construction spending, the economy also suffered from a contraction in net exports of 1.8 percent. This was largely due to the slowdown in both exports and imports growth to 1 percent and 4.6 percent, respectively.
On the production side, the agriculture sector only contributed 0.2 percentage points to GDP growth, despite posting a 1.6-percent expansion, higher than the 0.1-percent growth in the first quarter of 2014.
“Although its contribution is small, agriculture has a stronger impact because many people are employed in the agriculture sector,” Ateneo de Manila University economist Alvin Ang said.
He said the low growth in agriculture could lead to an increase in unemployment and/or underemployment in the farm sector. This may be observed in the April Labor Force Survey results to be released in June.
Meanwhile, data showed that industry posted a growth of 5.5 percent, which is higher than the 5.4 percent recorded in the same period last year.
The industry sector was boosted by Manufacturing, which contributed 4.2 percentage points to Industry’s growth for the first quarter this year.
The growth in manufacturing was boosted by the manufacture of the radio, television and communication equipment and apparatus, and production in basic metal industries.
However, usual top manufacturing industries, like food manufacturing and furniture and fixtures, posted slower growths at 0.8 percent and a contraction of 0.4 percent in the first quarter, respectively. “The exports have something to do with that [low manufacturing production growth in the first quarter],” National Economic and Development Authority Deputy Director General for Planning Emmanuel Esguerra said.
“[But] the decline in imports came from minerals and oil, but the positive point there is the capital equipment are, in fact, double digits. That is an indication that the private sector is in a way still optimistic because that’s part of building capacity and because that is equivalent on a gamble on the future; that is indicative of a positive outlook,” Esguerra explained. This optimism, Balisacan said, is enough for the government to be confident that the economy can meet its growth targets for the year.
Balisacan said the government’s disbursement performance in the first quarter already points to a higher trajectory in government spending.
He added that the government is carefully monitoring the spending of its line agencies to ensure that funds are not only allocated but also disbursed. This will ensure that the economy will be able to post better growth in the succeeding quarters.
“If this disbursement trajectory is sustained and reflected in all government agencies, the higher government spending will fuel even more activities in the private sector and, thus, push economic growth in the next quarters of the year,” Balisacan said. Ang said this is possible, particularly in the third quarter. He estimated that the third quarter will be where the government’s spending will peak, based on the country’s previous experience under the Aquino administration.
However, he said, this increase in government spending will not be inflationary, or cause a sudden spike in inflation. He said 60 percent of the country’s economy is derived from spending and, if prices of basic commodities like rice remain stable, inflation will only stay within, or even below, 3 percent this year.
Balisacan added that there is still a lot of reason to celebrate a 5.2-percent GDP growth rate. He said, with this, the country’s average growth in the past five years is at 6.3 percent, the highest five-year average in 40 years.
“The growth performance in this quarter tells us that there are still issues that the government needs to confront in order to maintain the high level of confidence that the business sector is showing and entrusting the country,” Balisacan said. “We must keep in mind that the economic performance in the first five years of this administration remains the highest five-year growth average recorded by the country since the mid-1970s—a testament to the private-sector support for the governance and economic reforms that we have been implementing,” he added.
Presidential Communications Secretary Herminio B. Coloma Jr. he said attributed the slower-than-expected growth to “delays in actual disbursement of funds” that, he added, are “usually experienced at the start of the year.” According to Coloma, President Aquino had already order the Department of Public Works and Highways (DPWH), Transportation and Communications, Department of Educations, and Agriculture, and all other departments to accelerate the implementation of vital public infrastructure projects.
“Among these agencies it is noteworthy that the DPWH has posted the highest utilization rate of obligated appropriations,” Coloma pointed out.
He recalled that on March 30, Mr. Aquino issued Administrative Order 46 to address key institutional areas of improvement that were noted in the Department of Budget and Management’s (DBM) year-end 2014 disbursement report, specifically on planning and program/project design, procurement and program/project implementation bottlenecks. Coloma cited a DBM report that national government spending for the first quarter of 2015 was P504 billion, or 4.5 percent higher than the comparable 2014 disbursement level of P482.5 billion.
(With Butch Fernandez, Bloomberg News)
2 comments
very poor financial management by aquino
To overly cautious to spend is bad our economy here’s the proof.