This is a re-posted opinion piece.
The Philippine economy grew by 3.4% during the second quarter of 2011, the slowest since President Aquino III took power in July 2010, and significantly lower than the 8.9% growth in 2010. With this dismal economic performance, the aspirational goal of 7 to 8% GDP growth for 2011 is virtually unreachable.
Public authorities are now more exposed to the criticism that rather than being a source of growth, the government has become a major drag to the economy.
Public construction continues to plunge: from negative 24.0% in the third quarter of 2010 to negative 37.3% in the first quarter of 2011. And despite assurances from the Department of Budget and Management (DBM) officials that a catch-up was in effect, public construction took a dive, contracting by as much as 51.2% in the second quarter of 2011.
What an ironic twist of fate! With a national budget approved on time and high expectation that public projects would be done on time, public construction plunged deepest during the second quarter — April to June — when government projects are best started and completed.
Government final consumption expenditure was not as bad, however. It recovered slightly in the second quarter of 2011. But this is mainly due to the early implementation of the salary standardization law. Salary increases were given one month ahead of schedule — June instead of July. Government consumption expenditures were compressed during the first three quarters under the Aquino administration — negative 6.1% and negative 7.6% in the third quarter and fourth quarter of 2010, respectively, and negative 17.2% in the first quarter of 2011.
When government projects are delayed, it means that the economic benefits from such projects are postponed and the employment opportunities associated with such projects are also deferred. Unfortunately with serious unemployment and underemployment in our midst, delays in project implementation are costly in social and economic terms.
The message for public authorities is clear: if it wants to be part of the solution, it ought to act more decisively and move government programs and projects faster.
The other message is that the quality of public spending is important. In the haste to spend the taxpayers’ money to catch up on the underspending, public authorities should keep in mind that disbursements for various programs and activities are not equally beneficial. Some are more important than others; some may even be wasteful use of budget resources.
For example, investment in well-chosen public infrastructure is much more important than earlier implementation of the salary adjustment plan or the purchase of a naval ship.
The Philippines lags behind its ASEAN neighbors in terms of public infrastructure. Its roads and bridges are crumbling. The Ninoy Aquino International Airport is an embarrassment.
The government has to allocate the equivalent of P500 million annually for its public infrastructure. Yet, it has only about one-fourth of that ideal outlays appropriated in the 2011 and 2012 budgets.
EXPORTS ARE SLOWING
The other weak performing part of the economy is the trade sector. Exports contracted by 0.3%, after a near-flat (0.1%) performance of exports of goods, and a decline of 2.2% for exports of services. The latter is largely the remittances of overseas Filipino workers, which have declined in real terms.
Export performance in the second quarter of 2011 is the weakest during the first four quarters of the Aquino presidency. Exports grew by 29.9% in the third quarter of 2010, 21.1% in the fourth quarter, dropped to 3.3% in the first quarter of 2011, and finally hit the negative territory in the second quarter of 2011.
Electronic products, which comprise more than half of total export receipts, contracted by 10.8% during the first half of the year compared to the previous year. The “best scenario” for the electronics sector was zero growth as the Philippines will be hard pressed to achieve even a 5% exports expansion this year.
Imports followed the same pattern. From 18.2% growth in the third quarter of 2010, these grew slightly to 21.8% in the fourth quarter, dropped to 8.8% in the first quarter of 2011 before it plunged further to 4.1% in the second quarter of 2011.
The dismal performance of the trade sector is to a large extent due to the worsening world economic situation. Growth forecasts for 2012 for almost all developed and transition economies have been downgraded. The odds of a double-dip recession have grown sharply in the US and Europe.
But the weak export performance may also be the outcome of the strengthening of the peso owing to the unabated entry of ‘hot money’ into the Philippines.
MESSAGE TO ECONOMIC MANAGERS: GET REAL
When the first-quarter GDP numbers were unveiled, National Economic and Development Authority Director-General Paderanga was quoted as saying that: “We will review the 7% to 8% growth target once the second-quarter numbers are out.” Paderanga was hoping for a “stronger growth in the [second] quarter due to increased investments.”
Now, the moment of truth. With a modest 3.4% GDP growth in the second quarter, and capital formation slowing to 0.9% even as construction contracted by 13.5%, such review has become inevitable.
With the new second-quarter GDP numbers showing weakness in the economy, and faced with a world economy that is in a grimmer situation than it was a few weeks ago, the aspirational 7 to 8% GDP growth is now virtually unreachable.
After a serious reassessment of the economic landscape, government planners should adjust its GDP growth target for 2011 to a more realistic level — say 4.5% to 4.9%.
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By: Benjamin E. Diokno – Core
Source: Business World, Aug. 31, 2011
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