MANILA, Philippines – Despite promised higher government spending, the incoming administration is considering lowering economic growth targets this year until 2019.
“Public spending, especially for public infrastructure, does not affect economic growth instantaneously. There is usually a lag,” said incoming Budget Secretary Benjamin Diokno said yesterday.
“(President-elect Rodrigo) Duterte’s economic team will have a chance to re-assess current government forecasts when we meet before the end of June,” Diokno said.
Under the medium-term economic program, gross domestic product (GDP) growth is targeted to rise between 6.8 and 7.8 percent this year.
Growth is expected to slow down to 6.6 and 7.6 percent next year, before bouncing back to seven to eight percent in 2018 and 6.9 to 7.9 percent in 2019.
Echoing incoming finance chief Carlos Dominguez, Diokno said this year’s goal is “on the high side” despite a 6.9-percent uptick in the first quarter.
GDP expansion in the first three months was the fastest in three years.
“Second half growth rate will be slower…as the impact of election spending fades. Agricultural sector and exports would continue to be weak,” Diokno said.
This, in turn, may spill over to the next years as Diokno said even a bigger infrastructure outlay may not be enough to meet present targets.
Diokno earlier said that under Duterte, capital outlays would rise to between five and seven percent of GDP from 3.3 percent last year, which was the highest since at least 1991.
This, in effect, will bring the budget deficit to three percent of GDP from 0.9 percent last year.
“There is usually a lag. The lagged effects depend on the scale of the (infrastructure) project,” Diokno said.
“Small-scale projects have short lags, (while) large scale projects have long lags,” he added.
Sought for comment, Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said the next government is trying to temper expectations.
“They want to be conservative. We do expect some slowdown in the second half, but I think with higher outlays, they should be able to boost growth to seven percent on their second year,” Neri said in a phone interview.
Businesses, meanwhile, said growth outcomes would highly depend on the quality of infrastructure to be built.
“Spending for infrastructure will be good for the country. However, these must be the right projects at the right places, at the right time and at the right prices,” said Peter Perfecto, executive director of the Makati Business Club.
John Forbes, senior adviser at American Chamber of Commerce and Industry, said the next government should spend on mass transit, airports, and irrigation, among others.
Public-private partnership (PPP) projects, of which 12 have already been awarded, should also be accelerated.
“They can fast track the PPPs and that should also help in ensuring that they remain within their deficit targets since that will cost less for the government,” Forbes said in a text message.
“Better infrastructure makes the economy more efficient…,” he added.
7 June 2016
By Prinz Magtulis