RP's failure to spend results in low growth

MANILA, Philippines - Manila admitted that it failed to spend as much as it should during the first four months this year, an oversight that prompted the Philippines to miss its growth goals for the first quarter. However, its inability to spend P10 billion from January to April still fails to account for the disparity between the low growth and the money that was freed up and made available in the financial system. This disparity was further emphasized when Socioeconomic Planning Secretary issued comments about the “folly of throwing money at problems." As a result, it has prompted officials of the Bangko Sentral ng Pilipinas (BSP) to defend the government’s recent fiscal and monetary actions. “Nobody ever suggested that we just throw money into the economy to ensure that we avoid a recession," Guinigundo said, after Recto reportedly made the remark. Although spending “sends out a good signal to the market, it doesn’t suggest that government goes ahead and spends on anything and everything," Guinigundo said. “Did the national government spend on projects as originally scheduled and programmed?" Guinigundo asked. Disbursements made by the Department of Budget and Management should be examined closely to verify whether the outlays were received and spent by local governments and other line agencies, he said. Earlier, the Department of Budget and Management (DBM) said disbursements from January to April rose by 16 percent compared to the same period last year. “In short, we need to ensure at this point that the additional budgetary allocation was actually spent," Guinigundo said. Meanwhile, consumption activities – which comprise approximately 70 to 80 percent of the economy – grew by only 8.9 percent during the first three months, the lowest in 25 years. In 1983, consumption activities only averaged 0.1 percent as spending was slowed down by the murder of ex-Senator Benigno S. Aquino. However, during the same year, bank lending growth was only 4.3 percent as opposed to 18 percent currently. “This is truly unusual and we intend to find out as we meet with the other members of the economic cluster starting later this week," Beltran said. While he also recognized that the government spent below its goals for the first four months, this only amounted to a tiny fraction of just 0.4 percent of GDP and should be too small to matter. Next: Philippines will need another spending package next year Philippines will need another spending package next year Lower than expected spending has prompted the country’s socioeconomic body to say that the country will need another Economic Resiliency Package (ERP) next year. The move intends to further protect the economy from the lingering effects of the worldwide recession. As a result, the National Economic and Development Authority (NEDA) will be recommending that the budget for 2010 should include another stimulus program, Recto, who is also NEDA director general said. Next year’s ERP should be “something like three percent of the country’s gross domestic product [GDP]," Recto said. The country should still put a stimulus package in place because “there’s still global contraction," he said. “You have to develop local economy and you will have to continue spending next year," said Recto. This year the government has crafted the P300-million ERP, which includes spending on infrastructure and tax perks, intended to spawn an economic multiplier effect that will drive the country’s output. Since the government is already in a period of “budget call" – when government agencies are drafting their programs and projects –Recto said the NEDA will seek congressional approval for another ERP. Without the ERP, economic growth for the first three months would have been worse than the 0.4 percent turnout, he said. Despite the election ban on government projects next year, Recto said he sees nothing wrong if Congress includes a second ERP to boost the economy next year. “You have to think before and beyond the elections. Once the elections are over, we'll have something to spend. Election doesn't mean we have to stop everything," he said. For next year, Recto also said that it would be better for the Philippines if the deficit be maintained at about three percent to GDP to ensure that the government boosts consumption. “We'll probably have the same deficit as well as percentage of GDP. I don't think we can afford to bring that down from three to two percent of the GDP from [the current] 2.5 percent to GDP.…We might have the same level of deficit next year. But we still have to look at the absorptive capacity," he added. The Finance Department is seeking to contain budget deficit this year to 2.5 percent of the GDP at P199 billion. - With Cheryl M. Arcibal, GMANews.TV