GDP growth at 5.6%: Budget impasse drags down economy

by Julito G. Rada, Manila Standard, May 10, 2019

Economic growth decelerated to a four-year low of 5.6 percent in the first quarter from 6.5 percent a year ago, weighed down by the delayed approval of the 2019 government budget, data from the Philippine Statistics Authority show.

The PSA said Thursday this was the slowest growth in the gross domestic product (GDP) recorded in 16 quarters, or since the economy grew 5.1 percent in the first quarter of 2015. It was also slower than the 6.3 percent expansion in the fourth quarter of 2018.

“As we have forewarned repeatedly, the re-enacted budget would sharply slow the pace of our economic growth,” Socio-Economic Planning Secretary Ernesto Pernia said in a briefing.

He said the economy “should have grown by as much as 6.6 percent this first quarter if we were operating under the 2019 fiscal program.”

Data showed that trade and repair of motor vehicles, motorcycles, personal and household goods; manufacturing; and financial intermediation were the main drivers of growth in the first three months.
Among the major sectors, services had the fastest growth of 7 percent, followed by industry with 4.4 percent.

The agriculture, hunting, forestry and fishing sector barely grew by 0.8 percent in the quarter.

Net primary income from the rest of the world rose 1.9 percent, resulting in the 4.9 percent growth of the gross national income.

President Rodrigo Duterte signed the P3.7-trillion national budget for 2019 in April after a long impasse between the two houses of Congress.

Pernia said government’s consumption expenditure grew by only 7.4 percent in the first quarter, slower than 13.6 percent a year ago, while public construction contracted 8.6 percent.

Pernia remained optimistic, however, saying the full-year growth target of 6 percent to 7 percent remained possible if the economy would expand by an average of 6.1 percent over the next three quarters.

“This is still achievable given the current performance of the private sector and if the government sector is able to jump-start and speed up the implementation of its new programs and projects,” Pernia said.

Finance Secretary Carlos Dominguez III said he was expecting the domestic economy to expand at a higher clip for the rest of the year as inflation continued trending towards the official target range of 2 percent to 4 percent.

He said the government would accelerate the implementation of infrastructure and human capital development projects to make up for underspending in the first quarter.

Dominguez said the 5.6-percent growth in the quarter was a “decent expansion” that kept the Philippines among the region’s fastest-growing economies.

“The budget impasse in the Congress during the year’s first three months had set off a spending cutback, which, in turn, stifled economic activity,” Dominguez said in a statement.

“Were it not for the Senate-House deadlock over the 2019 GAB [General Appropriations Bill] which forced the government to operate on a reenacted 2018 budget for the entire first quarter, the economy could have received a tremendous boost from what should have been much higher state spending on infrastructure modernization and human capital formation at the onset of 2019,” he said.

Dominguez said that as the Duterte administration was forced to put the originally planned 2019 disbursements on hold in the first quarter, state spending fell by some P75 billion in the three-month period based on an estimate of P1 billion per day. He said this meant “lost opportunity to fund new infrastructure projects, a setback aggravated by the public works ban this election campaign period.”

Data from the Bureau of the Treasury showed that national government disbursement dropped 8 percent to P287.3 billion in the first three months on account of the congressional delay in the approval of the 2019 national budget.

Dominguez said economic managers had anticipated the adverse impact on the economy of the Congress’ budget deadlock, prompting the Development Budget Coordination Committee to adjust in March the GDP growth target in 2019 to a range of 6 percent to 7 percent from the original 7 percent to 8 percent.

A legislator on Thursday blamed what he called the “tantrums thrown by some senators” during the deliberations on the national budget for the slower GDP growth.

The legislator, who asked not to be named, said the senators “did their damnedest best to obstruct the enactment of the national government budget because of personal reasons against certain members of the House of Representatives.”

Senate President Vicente Sotto III, however, said the Senate should not be blamed for the slowdown since the House was late in sending them the budget. He added that congressmen prevented the speedy approval of the budget when they made changes to it, even after it was approved by the bicameral conference committee. With Maricel V. Cruz and Macon Ramos-Araneta