Gov’t may have shifted to ‘austerity’ stance, posing risk to growth

By Luisa Maria Jacinta C. Jocson, Reporter

WEAK government spending, elevated inflation and rising debt have been cited as possible factors slowing down growth, analysts said.

“Lackluster spending from the government will be one reason we expect growth to slow this year. Government expenditures were a solid source of support throughout the pandemic but with the fiscal balances showing elevated debt and deficit levels, this may be forcing fiscal authorities to shift to a more austere mode,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

The National Government’s (NG) fiscal deficit narrowed 14.51% to P270.9 billion in the first quarter, against the P298.705 billion deficit programmed by the government.

Expenditures in the January-to-March period declined 1.06% to P1.09 trillion due to a drop in interest payments. It was also below the P1.12-trillion program for the period.

On the other hand, revenue rose 4.38% to P818.7 billion in the first quarter, within the P818.685-billion program. This was driven by growth in the collections of the Bureau of Internal Revenue and Bureau of Customs.

Albay Rep. Jose Maria Clemente S. Salceda said in a statement last week that the government is “not spending cash fast enough, despite good collection performance by the tax collection agencies.”

Mr. Salceda also said that if the government doesn’t spend more, the country may need to “rely solely on private investment, which could mean it misses its growth targets.”

The government is targeting gross domestic product (GDP) growth of 6-7% this year.

First quarter GDP likely settled at 6.1%, according to a BusinessWorld poll of 23 economists. This is well below the 7.1% growth in the fourth quarter and the 8.2% expansion a year earlier.

The Philippine Statistics Authority is set to release first quarter GDP data on Thursday.

Leonardo A. Lanzona, an Ateneo de Manila economics professor, said government spending is being held back by inflation and debt.

“Despite the promises of economic transformation, the government is effectively undertaking an austerity program to stem inflation and reduce the already huge debt,” he said. 

NG outstanding debt hit a record of P13.75 trillion at the end of February.

At the end of December, the debt-to-GDP ratio stood at 60.9%, still above the 60% threshold considered manageable by multilateral lenders for developing economies.

“The decline in inflation last month is a sign that the high interest rate policies and decreased government expenditure have succeeded in reducing aggregate demand and in the process stifling economic growth, as observed in the recent declines in agricultural and manufacturing growth,” Mr. Lanzona added.

Inflation slowed to 6.6% in April, within the forecast range set by the Bangko Sentral ng Pilipinas (BSP) of 6.3-7.1%.

However, it was still above the BSP’s 2-4% target range and 6% full-year forecast. Inflation averaged 8.3% in the first quarter.

Mr. Salceda also said tight monetary conditions are impacting growth. 

“Unfortunately, despite growth in collections, we are actually implementing contractionary fiscal policy, with disbursements being 1.05% down, despite expectations of around 6% real GDP growth this year. Together with the Federal Reserve’s continued commitment to increase hikes further, and the contractionary monetary policy that these actions force our BSP to take, we cannot expect resilient growth with these economic policies,” he said.

The Federal Reserve has now raised borrowing costs by 500 basis points (bps) since March last year, bringing the Fed funds rate to 5-5.25%.

To tame inflation and keep in step with the Fed, the BSP has raised rates by 425 bps since May 2022, bringing its key rate to a 16-year high of 6.25%.

The Monetary Board is set to hold its next policy meeting on May 18.

The government should focus on spending on programs that will expand productivity, such as infrastructure, Mr. Salceda said.

“That means we also need to expedite National Government disbursements especially for asset creating projects such as infrastructure,” he added.

“If government spending is not going as planned, growth will be less than expected. However, it’s important… that spending is for infrastructure and other programs that raise productivity because the increased productivity can help pay for the loans that were incurred,” Calixto V. Chikiamco, Foundation for Economic Freedom president, said in a Viber message.

This year, the government plans to spend 5.3% of GDP on infrastructure, equivalent to P1.29 trillion.

Mr. Lanzona also said the government should better manage the digital transformation, micro, small and medium enterprises policy, and develop the “green” sectors of the economy. 

“The government needs to do its job.  What is missing is a comprehensive government that will bring along growth and a productive workforce…. the limited government expenditures are forming the barriers to the country’s full recovery,” he added.

This year, the government set a budget deficit ceiling of P1.499 trillion, equivalent to 6.1% of GDP. This deficit will be the result of P3.729 trillion in revenue and P5.228 trillion in disbursements.

Mr. Salceda also called on the Department of Budget and Management (DBM) to release funds at a faster rate.

In its latest Status of Allotment Release report, the DBM said it had released P4.31 trillion or 81.9% of the 2023 national budget by the end of March.

Releases to government agencies and departments amounted to P2.953 trillion or 93.8% of the budgeted funds.

Around P954.4 billion of the P5.268-trillion budget for this year remains to be distributed.

“Since the start of the year, we continue to ensure the timely release of all budget allotments in adherence to President Ferdinand R. Marcos, Jr.’s call for swifter implementation of programs and projects,” the DBM said in a statement.

“While disbursements and project implementation can be best explained by the agencies themselves, and given that most of the budget is already released, the DBM hopes that procurement procedures are already underway on the part of the agencies to facilitate the implementation of their respective projects, especially in the infrastructure sector,” it added. 

The proposed 2024 budget is estimated at P5.8 trillion, up 10% from this year’s budget.