MB says Aquino underspending doing ‘more harm than good’

The current policy of the Aquino administration to screen budget releases may have done the economy more harm than good, minutes of the last Monetary Board (MB) meeting showed.

Growth in the second quarter muddled along at 3.4 percent from a year ago that was seen as mostly the result of huge government underspending.

The low growth in the second quarter came from a growth of 4.6 percent in the first quarter and was also well below the government’s target of a 4.5 percent to 5.5 percent, placing the country among the weakest performers in Asia.

Compared with the previous quarter, economic output was almost flat posting a 0.6 percent growth.

The seven-man MB noted the double-digit underspending that starved the economy of activity particularly in the crucial second quarter.

The MB warned of more trouble in the second half for the manufacturing sector, particularly those that heavily rely on government projects in their business such as cement manufacturers.

“Macroeconomic conditions are likely to be challenging in the second half of the year as global economic growth is expected to enter a soft patch,” the MB said.

It noted more trouble for manufacturers the rest of the year as a result of the still weak global economy.

The MB, however, cited the contributory factor to the weak business activity of low government spending in the first half, which contracted by 11 percent to P698.87 billion compared to last year.

Disbursements in July remained below the target by 10 percent to only P832.31 billion indicating that the government had yet to compensate for the low spending trend.

“The decline in construction can be largely blamed on government underspending, with public works slowing (by minus 51.2 percent) even as private activity surged (19 percent). This also bears out our forecast of a slow start for the public-private partnership (PPP) program, likely impeded by governance problems carried over from the previous administration and the desire of the current government for high ‘quality at entry’ contracts/projects,” the think tank Global Source had said.

It attributed the fall in output growth, which surprised even the BSP, to a deceleration in industry activity that in turn was due to the minus 16.1 percent drop in construction activities from year ago growth averaging 24.7 percent.

The utilities sector also contracted to minus two percent from year ago growth of 10.2 percent, Global Source said.

The MB also cited data from the real sector indicating “that the underlying strength of the economy remains intact” but the risk on output conditions in the second half of the year leans “marginally” toward a slower pace of economic activity. According to the MB, this was indicated by such lead indicators as capacity utilization of the various manufacturers still averaging above 80 percent no matter the early signs of a slowdown in manufacturing activities and the volume of production index or VoPI which in May this year slowed for the sixth consecutive month already. CL