Sluggish government spending slowed the growth of the Philippine economy during the first quarter of the year to 5.2 percent—the slowest since 2012.

The first-quarter gross domestic product (GDP) growth was down from the 6.6-percent expansion posted in the fourth quarter of last year, as well as from the 5.6-percent growth rate registered during January-March 2014.

The country’s economic managers attributed the lower growth in the first quarter of last year to the effects of Supertyphoon “Yolanda” (international name: Haiyan), which flattened Eastern Visayas in November 2013.

But this year, while efforts to improve tax collection had increased government revenue, agencies were found slow in spending these resources on public goods and services—a problem that the Department of Budget and Management (DBM) said it had been dealing with since last year.

Failed to spend more

“While growth in the private sector remains robust, the slower-than-programmed pace of public spending, particularly the decline in public construction, has slowed down the overall growth of the economy,” Socioeconomic Planning Secretary Arsenio M. Balisacan told a press conference on Thursday.

Government data released early this week showed that between January and March, the government again failed to spend as much as it should on public goods and services, as expenditures rose by only 4 percent year-on-year to P504 billion, 13 percent below the P582.2-billion spending goal.

In 2014, government underspending was largely blamed for the 6.1-percent GDP growth, which was lower than the 6.5-7.5 percent goal for the year.

The government attributed last year’s anemic spending mainly to the “chilling effects” of the Supreme Court ruling that the Aquino administration’s Disbursement Acceleration Program (DAP) was unconstitutional. The DAP was a stimulus program that the DBM cobbled from agencies’ savings without congressional approval.

Budget Secretary Florencio B. Abad pledged to accelerate government spending, saying the DBM had been improving spending processes in order to facilitate faster disbursements.

Robust tax collection, revenues

Collection of taxes and other revenues during the first quarter, meanwhile, jumped by a robust 18 percent to P470.5 billion.

But Balisacan, who is also the director general of the National Economic and Development Authority (Neda), maintained that “the missed opportunity to have a higher growth [during the first quarter] is not totally forgone as we still expect public spending to pick up [during] the rest of the year.”

“According to the latest report of the DBM, the disbursement performance for the first three months of 2015 shows a trend toward faster government spending. 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.

The economy must grow by 7.5 percent during each of the three remaining quarters of the year for the government to hit the lower end of its 7-8 percent growth target for 2015—something that is “not impossible” to achieve, according to Balisacan.

Careful watch

“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. Therefore, we are keeping a careful watch over the spending performance of the agencies to ensure that implementation bottlenecks are being addressed and the execution of programs and projects will not be further delayed,” Balisacan said.

Moving forward, the Neda chief said, “it is reasonable to believe that the economy will grow at a faster rate in the remaining quarters,” hence the government is sticking to its full-year GDP growth goal.

Balisacan pointed out that “amid the challenges that [the] government continues to face, 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.”

Spending within control

Finance Secretary Cesar Purisima said public spending was “largely within our control” and would improve in the coming quarter.

“Numbers fluctuate each quarter but they clearly show an unmistakable positive trajectory. We are less concerned about the quarterly numbers game than getting the foundations of our growth right,” Purisima said in a statement.

“It is not always easy or fast, but growing with the right foundations makes our trajectory more sustainable,” he said. “We are cognizant of the opportunities ahead and will resolve to boost government capacity to spend at the right pace.”

Investor interest

But business groups warned that weakening economic growth may temper investor interest in the Philippines.

In recent quarters, the Philippines’ GDP growth rates were consistently the second-fastest in the region, next to those of China, but the Philippines fell behind Malaysia and Vietnam in economic expansion during the first quarter of this year.

“Slowing growth will weaken the perception of a dynamic Philippine economy,” John D. Forbes, American Chamber of Commerce of the Philippines senior adviser, said in a text message.

“Inadequate public spending, port congestion issues and outdated infrastructure are challenges that must be addressed to maintain investor confidence and to raise the GDP growth rate above 7 percent,” Forbes added.

Infra spending

“Infrastructure spending needs to be accelerated, and limitations on the involvement of foreign construction investors should be removed now,” said Henry J. Schumacher, executive vice president at the European Chamber of Commerce of the Philippines.

Management Association of the Philippines president Francisco F. del Rosario agreed that the country could achieve its GDP growth goal “by increasing infrastructure spending.”

Ample time to recover

Employers Confederation of the Philippines president Edgardo G. Lacson noted that “since the GDP is a function of spending, the government must accelerate the execution of the public-private partnership, or PPP, infrastructure projects to generate employment and stimulate the economy.”

“With seven months left in the year, there is ample time to recover the slowed spending momentum,” Lacson said.–With reports from AP and AFP

Source: The Philippine Daily Inquirer