The 2011 GDP growth forecast for the Philippine economy has turned gloomier and gloomier. First, the Asian Development Bank, then the World Bank, then the IMF, followed by Citicorp, then the government’s think tank, the Philippine Institute for Development Studies, and finally the New York-based think tank Global Resource. The revised GDP forecasts get cut more deeply with every passing day.
But Philippine government authorities refuse to accept reality: that the aspirational GDP growth of 7% to 8% is gone, and even the conservative 5% to 6% GDP growth is going to be a tough target to meet.
The world economy is in disarray, with policy consensus getting more difficult to arrive at. In the meantime, government underspending in the second half of 2010 and during the first quarters of the 2011 has come back to haunt Philippine executive officials.
The Asian Development Bank (ADB) lowered its 2011 growth forecast for the Philippines to 4.7% from 5.0%. Growth for 2012 is projected to pick up to 5.1% assuming increased public and private investment. ADB blamed subdued government spending and slower exports for the revised forecast.
The World Bank expects GDP to hit 5% this year and 5.4% in 2011.
The International Monetary Fund (IMF) has cut its 2011 forecast of GDP growth in the Philippines to only 4.7% and only 4.9% in 2012. IMF’s original forecasted growth of 5% for both 2011 and 2012.
US-based investment bank Citigroup downgraded anew its economic growth forecasts for the Philippines this year to 3.7% from the original 3.9% and to 3.9% instead of 4.6% in 2012. It blamed fiscal underspending, weak exports, supply chain disruption, as well as the global fiscal storm brought about by the debt crisis in the US and Europe for its revised forecasts.
The state-run Philippine Institute for Development Studies (PIDS) was also thinking of downgrading its growth forecast for this year. “[I expect growth of] below 5% for 2011 … maybe 4.8% thereabouts,” PIDS president Josef T. Yap was quoted as saying in a recent forum. The projection is lower than the 5.9% forecast released by the PIDS earlier this year.
Disappointing public underspending
Yap blamed the “disappointing” first half on government underspending and slow investment. “I was hoping that with the new administration, businessmen will come in… but our investment rate hardly moved,” he added.
New York-based think tank Global Source cut its 2011 growth forecast for the Philippines to 4.3 percent from the previous 4.8 percent. It blamed the looming global crisis and government underspending for the downgrade.
Government underspending has dragged the Philippines’ economic growth to 4% in the first semester. “Seeing the negative impact on growth, the government has been desperately trying to catch up on spending, but we are doubtful it can make much headway, having already missed the boat on infrastructure projects by failing to roll these out during the dry months,” Global Source said.
With one quarter to go, the infrastructure catch-up plan is doubtful. Even more serious is the government’s inability to move its Public-Private Partnership (PPP) program. Global Source, in an earlier report, blamed the delay in the PPP program to the lack of well-crafted feasibility studies, weak technical and institutional capacity, and overly tight scrutiny of unsolicited proposals, particularly those that were included in the investment pipeline by the previous administration.
Executive officials in denial?
With a looming slowdown becoming more real, it is not clear why Philippine government officials continue to drag their feet in revising the GDP target. Denying that there is an economic slowdown will not make the problem go away.
As I keep saying, it is the responsibility of the government, especially one that is committed to openness, to level with its people. If things are going to be hard, then they need to tell them that. If it’s going to be a Blue Christmas, then it is the obligation of the state to level with them, so consumers and firm owners can adjust their behavior accordingly.
There’s little that the monetary authorities can do to boost the floundering economy. They’ve done enough by keeping policy interest rates unchanged for a while.
It’s all fiscal policy now from here on. The government has to start spending its limited 2011 budget. It should focus on job-creating, rural-based, and shovel ready projects. There are school buildings that need to be built, rural roads constructed, rivers and canals cleaned, and denuded forests replanted.
One can’t go wrong with road maintenance. It’s quick disbursing and is unaffected by right-of-way problem. But keep the road maintenance fund away from the control of politicians.
Road maintenance work funded from the road users tax can be started soon after the monsoon rains. There’s an annual fund of about P10 billion which can be spent anytime, without waiting for congressional imprimatur. The annual budget for road maintenance is controlled by the Road Board. What’s left of the fund for this year, and I assume it’s quite humongous, should be spent as soon as the weather permits. This early, what’s in store for next year can already be programmed for release.
While the economy is slowing, there should be a deliberate rural bias for public construction. The focus of public construction should be in the rural areas. That’s where most of the poor reside. And the poor usually spend what little they earn which would then lead to a high multiplier effect.
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By: Benjamin E. Diokno – Core
Source: Business World, Oct. 5, 2011
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