Will the P72-billion stimulus work?

First of two parts

The Aquino Administration has much to make up for, and they know it. Upon the release of disappointing 2nd quarter GDP figures, Budget Secretary Florencio Abad promised increased government spending in the second half of the year, “not only by accelerating existing projects but also by spending on additional projects allowed by the fiscal space.” A month later, President Benigno Aquino 3rd announced this spending to take the form of a P72 billion “stimulus package”.

Economists and former Cabinet members Professors Benjamin Diokno and Solita Monsod have taken exception to the term “stimulus package”. In one of her columns Monsod wondered, “how can he have his cake and eat it too?” The former economic planning secretary rightly noted that the P72 billion cannot be considered an additional boost to the economy since it is part of the original 2011 government budget. In effect, the government will be working doubly hard to spend in the second semester what it had the entire year to use up.

Former budget secretary Diokno agreed in his own commentary: “The term ‘fiscal stimulus’ was a misnomer, because the new spending program is not one. It’s more like a ‘disbursement acceleration plan,’ as Department of Budget and Management [DBM] authorities called it.” He also cautioned against “lowering the quality of government spending” and changing “budget priorities … without congressional approval.”

Stimulus or not, the plan aims to address the underspending that has primarily dragged GDP down to 3.4 percent in the second quarter after a previous drop to a 4.9 percent in the first, also due largely to a sharp decline in public expenditures. Even the pro-Aquino Makati Business Club has added its voice to the call for more vigorous government outlays. “Government spending must now be pursued aggressively for sustainable growth and job generation,” said MBC board director Ramon del Rosario. “The private sector is doing its part. The government should do no less.”

But President Aquino was quick to defend the pace of implementing government projects. “It’s better to delay a project and have it thoroughly checked to ensure it benefits the country,” he said in Dumaguete soon after disappointing economic data came out. “Fiscal prudence is not underspending. It’s the sensible thing to do,” he told the Philippine Business Conference last month. So much for disbursement acceleration.

Looking at NSCB’s GDP tables, the effect of government scrimping can be seen this time in the -0.6 percent drop in growth over last year of the entire industry sector. A more in-depth inspection reveals public works to have declined by a staggering 51.2 percent from a year ago, contributing to a 16.1 percent decline in the entire construction industry. Other major sectors less dependent on government spending—agriculture and services—did more decently in the second quarter.

The DBM Assessment of Disbursements as of June further bore out the slowdown in government spending in the first half. The data indicates a shortfall of P140 billion from the programmed spending of P838.5 billion for the first six months of the year. The assessment cited the slowdown in the “pace of project implementation and payment schedules,” as well as in obligations entered into by departments and agencies, such as the Public Works and Education departments.

Public works had now fallen compared with 2010 levels in every quarter since President Aquino took over. The dismal second quarter GDP figures has prompted Senator Edgardo Angara to call the Aquino government “spending-shy” and to ask for the devolution of government spending to LGUs.

After this first half economic performance, is there still a chance to achieve government’s target of 7-8 percent annual GDP growth? To reach this goal, Director General Cayetano Paderanga of the National Economic Development Authority said, “the economy needs to grow by at least 10 percent in the second semester.” Well, miracles happen.

More realistically, in its Philippines Quarterly Update in September, World Bank revised downward its earlier 5 percent forecast to 4.5 percent growth for the country in 2011. In his recent visit to the Philippines, World Bank President Robert Zoellick reiterated the need to accelerate public spending, while saying he is “impressed” with the country’s resilience. ADB, meanwhile, trimmed its GDP forecast for the year to 4.7 percent from 5.0 percent.

What may hamper the Philippine economy’s growth the rest of the year, both institutions agree, are global economic woes, among others, particularly in terms of reduced investments and export activity. Paderanga, even while saying that “prospects for the second half of 2011 are better than the first half’s performance,” himself admits the risks posed by external shocks. –RICARDO SALUDO, Manila Times

(The last part will be published on Friday.)