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Consecutive drop reduces room to catch up on state spending
MANILA, Philippines – Time is running out for the government to catch up on spending, and October figures conclude a back-to-back drop in spending just when it is most needed to revitalize a struggling economy that is lagging behind. from their Southeast Asian peers.
The national government spent 289.6 billion pesos last month, a drop of 6.84% year-on-year and marking the second consecutive month of decline after a 15.5% drop the previous month, which was the largest under the Duterte administration. .
Worse still, spending fell 17.5% more than the previous month. The Treasury office, which released the data on Wednesday, blamed the “base effect” that supposedly comes from pension releases that apparently inflated spending last year. But the figures showed that disbursements only increased a minimum 1.4% in the same period a year ago.
Another reason cited by the Treasury for the low spending was appalling infrastructure outlays due to funds “realigned” to the coronavirus response, as well as “delays caused by the COVID-19 shutdowns.” The agency said this was “expected,” but economic managers had also repeatedly pledged to boost infrastructure as a stimulus out of the recession.
“We expect the downward trend in spending to continue through the end of the year, depriving the free-falling economy of much-needed fiscal resilience to recover from the pandemic,” Nicholas Antonio Mapa, senior economist, said in an email. of ING Bank in Manila.
The new contraction in spending also came with another 12.75% decrease in revenue to P228.2 billion. The budget deficit, which is the difference between expenses and income, widened to P61.4 billion in October.
The data showed that the government has a record deficit of P940.6 billion in the first 10 months, with a drop in revenue of 8.4% year-on-year and expenses of 12.8%. But a broader deficit has been the case since April and, in fact, is expected to rise further to P1.82 trillion by the end of the year, supposedly to give the government room to spend on unprecedented needs during the health crisis.
However, with just 2 months to go, only 51.8% of the deficit cap had been exhausted, the data showed.
Cost control
This is not unexpected given that economic administrators have repeatedly rejected proposals for stronger fiscal stimulus even with the damage caused by the typhoon adding to the mounting problems caused by the pandemic. In addition to this, the agencies had been slow in spending the funds they already had, a clear example of this was the 83,000 million pesos in unspent allocations from the social welfare department.
That was an insufficient expense that some senators called “near criminal” given the agency’s role in helping poor families.
In a briefing, Acting Secretary for Socio-Economic Planning Karl Kendrick Chua again defended the government’s approach of relying on what he called a “package” of responses that included fiscal, monetary, and financial support, but the latter has yet to be fulfilled as bank loans to companies consumption grew 2.8% in September, the weakest in more than 13 years.
“The size of the stimulus does not only determine the recovery of a country,” he said, citing the case of Malaysia which contracted 17.1% year-on-year in the second quarter, worse than the 16.5% of the Philippines.
Since then, however, updated data has been released to show that Malaysia’s economy only slumped 2.7% in the third quarter, much better than the Philippines’ 11.5%.
In the past, economic officials have also pointed to their track record of catching up on spending backlog last year when a 4-month delay in budget promulgation postponed new projects until June. In fact, that update was fulfilled at the end of the year, with an increase of 11.4% and a slight breach of the 2019 target.
But as 2020 progresses, Emilio Neri Jr., chief economist at the Bank of the Philippine Islands, said that spending growth would remain at that level at a time when it should have increased in the face of a crisis. “We will probably finish about 10% to 11% (growth) by the end of the year, similar to 2019,” he said.
“Because November and December have a higher base, further falls are expected for the rest of the year due to flooding and the absence of legislation to support additional calamities and T3 funds (testing, tracking and treatment),” Neri said in a tweet.
With weak government intervention, Mapa said the economy would be the loser. “One thing is for sure, fourth quarter GDP (gross domestic product) will now probably post a more severe recession from -11.5% of third quarter GDP which shows the economy lacks momentum,” he said.
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