Why beating PH’s 2012 growth target may not be feasible

MANILA, Philippines – Even if the government achieves its programmed deficit spending, it will not exceed its growth assumption this year, the Asian Development Bank (ADB) said.

The ADB now projects the Philippine economy to grow 5.5% in 2012, higher than its initial estimate of 4.8%. This is lower than the government’s official growth target of 5% to 6%.

The Manila-based multilateral lender said its growth projection already factors in the P279-billion budget deficit programmed by the government this year.

However, even this, it said the government is unlikely to hit.

“Our growth forecast already assumes that the expenditure will reach the targeted fiscal deficit. To reach that in itself would be a huge task,” said ADB Philippine Country Director Neeraj Jain, noting that the deficit has not reached even half the target.

“[But] if growth is on the upside, higher than what we projected, then we’re happier,” Jain added.

Little time to spend

Jain said reaching the deficit cap is not “realistic.”

The deficit amounted to P73.731 billion in January to July, which means the government has over P200 billion left to spend for the rest of the year.

“If the government spends between September and December, 200 billion pesos more than its revenues, then growth will be higher. But is that a realistic scenario?” Jain asked.

It can be noted that Budget Secretary Florencio Abad said consumption spending, coupled with the start of election spending, will provide enough boost to the economy to surpass a 5% to 6% growth this year.

Abad said that with the 2013 mid-term polls just around the corner, the country may already see some election spending toward the end of the year.

This, he said, will be on top of the holiday consumer spending that Christmas and New Year usually contribute to the growth of gross domestic product (GDP), which measures the local economy. Total consumption traditionally accounts for around 70% of GDP.

The 2010 growth of 7.3% — the highest in 34 years — should be instructive, said Abad. That year was also an election year.

Low infra spending to persist

Jain said that while the Aquino administration is on the right path in increasing infrastructure spending, the government’s infrastructure spending to GDP ratio is not expected to reach 6% to 8% in 2 to 3 years.

He said the government’s move to speed up the rollout Public Private Partnership (PPP) projects is one of the “steps in the right direction” in increasing infrastructure to GDP spending.

This, Jain said, has placed the Philipines’ current infrastructure spending above the 5% of GDP ratio that has been recommended by the ADB and other multilateral institutions.

Jain said to be able to grow the economy and ensure that growth will trickle down to poor Filipinos, the government needs to spend even more for instructure projects.

These projects will be able to improve the country’s business climate and attract more private investments that are key to jobs generation.

“What I can say with a great deal of conviction is that the government is moving in the right direction. It may not reach 6, 7, 8% of GDP of infrastructure spending in the next 2 to 3 years but its taking the right steps and perhaps it could do a bit more to devote, to use the fiscal space to boost infrastructure spending,” Jain said. –Cai Ordinario, Rappler.com