This is a re-posted opinion piece.
The Philippine economic expansion is definitely losing steam. And three international banks have just downgraded their projections of Philippine growth forecasts for 2011 to confirm it: Citigroup to 4.8% from 5.5%, HSBC to 4.3% from 5.2%, and Credit Suisse to 4.3% from 4.6%.
It looks like GDP growth for this year will settle, at best, at around 4.5% or lower, below the revised 5% to 6% government forecast, and much lower than the aspirational goal of 7% to 8% GDP growth.
But nobody believed the government’s aspirational growth targets in the first place — except for some super-optimists.
When the political crisis erupted in the Middle East and North African (MENA) territories erupted, and with the threat on overseas remittances and higher oil prices, government economic managers were quick to dismiss the threat as manageable.
When Japan was hit by its triple tragedy — earthquake, tsunami, and nuclear fallout — President Aquino’s economic men were quick to dismiss the catastrophe as transitory and some, in fact, saw huge opportunities for Filipino businessmen and contractors down the road. The effect of the Japan is a net positive for the Philippines, some government officials insensibly argued.
Don’t they talk to each other?
When Standard & Poor’s downgraded the United States credit rating, President Aquino prematurely stated that it wouldn’t have much impact on the Philippine economy and investments. It was reasonable to assume that the President had been briefed by his economic managers before he made his statement.
Apparently that was not the case. Appearing before the Senate finance committee, the Monday after the weekend the US triple A credit rating was cut, the economic managers admitted that they had yet to study the possible impacts of the the US credit rating downgrade on the 2012 national budget.
BSP Governor Tetangco asked for “some time to assess the potential impact.” However, BSP expressed the view that the impact of the decision of S&P to downgrade the triple A credit rating of the US would be short-lived. Finance Secretary Purisima rightfully asked for more time to be able to determine what markets would react to the US downgrade, and how it would impact on the Philippine economy.
But what a contrast. Two days after the US downgrade, Mr. Aquino had made up his mind: it would not affect the Philippine economy. His economic men, on the other hand, were more pensive and asked for more time to evaluate the historic US downgrade.
Even as all these were happening, analysts were calling the attention of policy makers to the slow-moving infrastructure program and the stalled public-private partnership (PPP) initiative. Not to worry, we have a catch-up plan, Budget Secretary Abad assured the general public. We’re still on track on the PPP, said Finance Secretary Purisima.
Reality check
Fast forward. The economic numbers are in: the economy grew at 3.4% in the second quarter of 2011, the slowest since Mr. Aquino took power. For the first semester of 2011, the economy grew by 4.0% — much lower than the aspirational growth of 7% to 8%. But importantly, the economy slowed as a result of all the external and domestic factors that were not supposed to affect the Philippine economy: weak world economy, political crisis in the MENA area, Japan’s triple tragedy, US downgrade and the risk of global double-dip recession, and severe government underspending.
On the underspending and slow implementation of projects, how credible is the catch-up plan? First, under the best possible condition, even if all the projects appropriated in the 2011 budget are implemented between now and the end of the year — that’s less than four months — the contribution of public infrastructure to the economy will still be negative.
The harsh reality is that the President proposed, and Congress dutifully approved, an infrastructure budget that is much smaller than the previous year’s. The budget for DPWH for 2011 is P95.0 billion, 27.6% lower than the P131.3 billion in 2010.
Infrastructure and other capital outlays in 2011 is P241.7 billion, 8.4% higher than the P223.0 billion in 2010. As percent of GDP, infrastructure and other capital outlays is 2.4%, lower than 2.5% in 2010. It is generally known that the total overstates the allocation for infrastructure since it includes other capital outlays which may include buildings, equipment, cars and trucks, chairs and desks, and other non-infrastructure spending.
The reality is that the Executive Department cannot spend more than what Congress has authorized it to spend. That’s the right path.
The extent of underspending is staggering: from January to July this year, actual spending plunged by P91.5 billion or by 58.7% compared to the same period last year. During the same period, actual spending was one slightly one-fourth (26.7%) of programmed budget.
Not surprisingly, public construction contracted by 51.2% in the first half of 2011, compared to a growth of 27% during the same period last year, according to the National Statistics Coordination Board.
What about the much-vaunted PPP initiative? A disaster — none of the projects that were announced last year and were supposed to be bid this year has taken off.
The earth-shaking news, however, is that the head of the agency tasked to oversee the PPP initiative has resigned. It’s awfully hard to put a positive spin to the resignation. When the quarterback of a team is taken out (injured, walked out, relieved) of the game early in the first quarter, that’s a bad sign. But if the bench is deep, say if the team has two to three good reserves, then a recovery is possible.
But Mr. Aquino’s centerpiece PPP program is already very much delayed. I don’t know enough of the PPP organizational structure to say whether the PPP team has good enough reserves. But when the team leader resigns, it should have the effect of hurting the performance of the team, even temporarily.
Time — and the potentially destructive weather for the next few weeks — is not on the side of the government’s catch-up plan for its infrastructure program. There are less than four months between now and the end of the year. But public authorities have to reckon with a few more rainy weeks up front and later a few laid-back weeks in December — it’s hard to get things done in the Philippines when the Christmas season sets in.
All told, more than half of the government projects authorized by Congress in the 2011 budget will not get done this year. Missed opportunities. You bet?
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By: Benjamin E. Diokno – Core
Source: Business World, Sept. 6, 2011
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