2011 growth targets in peril – think-tank

MANILA, Philippines – The Aquino administration’s ambitious growth targets for next year are in peril due to the government’s low budget for capital outlay and expansion as well as risks of a “double-dip” recession in the US, a congressional think-tank warned yesterday.

In a report, the Congressional Policy and Budget Research Department (CPBRD) reviewed the proposed P1.64 trillion national budget for 2011 and its implications to the government’s target of seven percent to eight percent gross domestic product (GDP) growth rate.

The proposed budget is 6.8 percent higher than the 2010 General Appropriations Act but as a percentage of GDP, is it slightly lower at 18.2 percent.

The CPBRD said the national budget, given a set of macroeconomic parameters, is a powerful tool to achieve “economic stability, increasing productive capacity, reducing poverty, and improving overall welfare of society.”

“However, the decline in the allocation of productive services as a percentage of GDP in the 2011 budget from 14.2 percent from 15.2 percent in 2010 does not appear to support the foregoing objectives. In particular, a major concern is the reduction in infrastructure outlay from 3.8 percent of GDP in 2010 to 3.5 percent in 2011, which is way below the five percent benchmark set by the World Bank,” the CPBRD paper said.

It said while it is important to achieve fiscal targets to promote macroeconomic stability, it is also important to underscore the role of the budget in promoting and sustaining economic growth, the think- tank said.

“Controlling deficit, for instance, should be made at the expense of reducing productive investments especially where there is enough fiscal space under conditions of public debt sustainability and credible exit strategy,” the document said.

It said the multiplier effect of government spending supports acceptable deficit spending on growth-sustaining and high impact social services.

The CPBRD said it predicts a more conservative 4.1 percent to 5.1 percent growth for the country in 2011. It said the robust growth forecast in 2010 will not be easy to sustain next year.

It said the slow pace of global economic recovery, “aggravated by Eurozone problems and fears of a double-dip recession in the United States, could still dim prospects for trade, investments and remittances.”

The CPBRD is banking on the so-called public-private partnership (PPP) to promote investments and achieve its ambitious growth targets but there is a real need for a clear policy for transparent and competitive processes to ensure that solicited bids are the primary mode of contract awarding.

“As the gestation period for PPP projects usually take long, the government meanwhile should tap other sources of funds for development,” it said. –Paolo S. Romero (The Philippine Star)