1Q GDP seen as unsustainable

Published by rudy Date posted on May 31, 2010

The country’s economic expansion during the first quarter—the highest in 30 years—is unsustainable because it depended solely on election spending, a former Cabinet secretary said. Benjamin Diokno, the former Budget secretary during the Estrada administration, said the better-than-expected growth the Philippines experienced during the first three months was not sustainable because it was mainly driven by election-related spending and because of base effects.

“I estimate that if election related spending was netted out, [the] first quarter GDP [gross domestic product] growth would be in the neighborhood of 3.6 percent,” the University of the Philippines economics professor said.

Last week, the government reported that the economy expanded by 7.3 percent from 0.5 percent in the same period last year and election-related spending contributed about 0.39 percent of GDP.

But Diokno said that only the two leading broadcasting companies, ABS-CBN Broadcasting Corp. and GMA Network Inc., benefited from the national elections.

“The fastest growing activity during the quarter was broadcasting media, up by a staggering 31.4 percent from 1.3 percent during the same quarter last year,” the economist said.

Waste collection/disposal businesses were also some of the entities that gained from the May polls as the sector grew by 9.5 percent from 1.9 percent.

“This involves cleaning up the clutter right before the start of the campaign period. The other election-related activity is the rental business for offices, [which went] up by 10.9 percent from negative 4.6 percent,” Diokno said.

Because of this, the 7.3-percent GDP growth from January to March may not be considered broad-based. Diokono said that the agricultural output during the period has declined largely because of El Niño and the lingering effects of Typhoon Pepeng.

“For Filipinos who rely on agriculture for their livelihood and employment—for those who live in the rural areas—poverty and hunger is not far behind. For them, the growth statistic is just a number. It can’t be used to feed one’s family, it can’t be used to educate one’s children and it can’t provide a better future for their children and their children’s children,” Diokno said.

For the whole of 2010, the government expects the GDP, which measures the value of all goods and services produced in the country, to grow between 2.6 percent and 3.6 percent for 2010.

The Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said many factors are considered before the government can assure of a positive economic performance all throughout the year.

”There are many ifs and buts. Base effects are important. If they start to fade out then you will have less support for a large year-on-year growth,” he said.

Some of the other factors that the next administration should consider include putting up infrastructure to ensure that economic activity is sustained, controlled fiscal expenditure and higher tax collection.

”It may or may not involve new taxes. It may not involve better tax administration but it can be a combination of those two that will translate into better public finances,” Guinigundo said.

The central bank official also said that it would not be “a bad thing” if the new administration finds it difficult to keep the budget deficit from breaching caps because of public expenditure as long as it communicates to the markets and to the investors that the steps are crucial in expanding the economy.

“We may have to do these because we want to make sure that the necessary infrastructures are put in place so that we can really sustain a high economic growth of 7 percent or 8 percent,” Gunigundo said. –DARWIN G. AMOJELAR SENIOR REPORTER AND LAILANY P. GOMEZ REPORTER, Manila Times

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