What PNoy should do about slower growth

Underspending by the government and the slow-down in global trade constricted the economy to a lower growth in the now 2000-based GDP of 4.9 percent in the first quarter, from the election stimulated 8.4 percent last year. The industry driven growth [was] tempered by the lackluster trading activities and the second consecutive quarter of decline in Public Administration and Defense and Compulsory Social Security which used to be referred to as Government Services.

— National Statistical Coordination Board on GDP growth in January-March 2011

The resignation of Bureau of Corrections Director Ernesto Diokno has buoyed hopes that President Benigno Aquino 3rd may finally be calling to account his appointees, especially those personally close to him. There is still talk of a Cabinet reshuffle, although the Palace has dismissed it as speculation.

However, Malacañang maintains that PNoy is still evaluating the individual performances of his official family. If that’s the case, he may find in first-quarter economic growth data a good indicator for assessing the Cabinet, especially secretaries in charge of implementing major programs in the national budget.

As the above-quoted statement reports, real GDP expanded a moderate 4.9 percent—far below the 8.4 percent gain a year before. And one big reason for the economic slowdown, according to the National Statistical Coordination Board (NSCB) was “underspending by the government.”

Even though the 2011 budget is 6.8 percent or about P100 billion more than last year’s outlays, public spending in the first quarter was nearly 15 percent or P30 billion less than the same period in 2010. The decline is almost as much as the whole year budget of the Transport & Communications, Health, or Social Welfare & Development department.

If the mammoth drop in spending was due to certain Cabinet members sleeping on the job, then these slacker secretaries caused far more actual damage to the nation—in terms of delayed projects and diminished public services, and employment and business opportunities—than BuCor chief Diokno did in failing to keep homicide convict Tony Leviste off the streets.

So why did the government scrimp so much in January to March? It certainly wasn’t because the budget had many items not to the administration’s liking. Congress rubber-stamped the 2011 General Appropriations Act with little change from PNoy’s proposed GAA. On top of that, the current spending law was enacted last November, so its P1.6 trillion in allocations were available in full from January, unlike previous budgets which were passed and took effect some months into the fiscal year.

Nor was the government short of money. The first quarter budget deficit was P85 billion less than the ceiling for the period. So if Budget Secretary Butch Abad had released P30 billion more to match last year’s January-March government spending, he would still be P55 billion below the programmed first-quarter deficit of P112 billion.

So was underspending the Department of Budget & Management’s fault? In the Bangko Sentral’s second-quarter survey of enterprises, the business confidence index dropped to 31.8 percent, from 47.5 percent in the first quarter, and 43.9 percent a year before, when the global economy was just coming out recession. One reason cited by respondents: “slow business procedures and fund disbursements for government construction projects.”

If public works are falling behind due to funding delays, the economic impact would be significant. Construction is a major job generator, and new roads, bridges, irrigation, and other infrastructure boost economic activity in areas where they are built—if they are built. But with the rainy season upon us, any summer projects not done will have to wait till August or September to resume.

However, before the President grills Sec. Abad about the slow budget disbursements, PNoy should know that in fact, DBM promptly transfers funds when agencies show that they have used up previous releases and implemented their programs and projects on schedule.

But many times, absorptive capacity—the ability of an agency or local government to utilize its budget in full and as scheduled— falls short. Thus, the DBM regularly checks cash balances of state bodies with the Land Bank. If the accounts still contain ample amounts, then the DBM will rightly defer issuing its much sought-after Special Allotment Release Orders (SAROs) and Notices of Cash Allotment (NCAs).

During the global downturn in 2009, then President Gloria Arroyo ordered agencies to accelerate spending, so as to keep the domestic economy growing despite the planet-wide slump. Thus, agencies were told that if they did not obligate or bid out SAROs within one month after being issued, they would lose the allocations. That prodded every Cabinet member to rev up his or her agency’s absorptive capacity. Result: the Philippines grew 1.1 percent while most of Asia and the world slipped into recession.

If President Aquino wants to check on the Cabinet’s performance, he should look beyond newspaper headlines and public opinion surveys, and pore through DBM and agency data on how well agencies are utilizing their budgets. The Presidential Management Staff can also do some checking, especially its Pro-Performance System, if it has not been shut down. PPS includes public and private sector representatives monitoring major public works.

Better still: the President or his incoming Chief of Staff Mar Roxas can hold more frequent Cabinet meetings to check on fund releases and project implementation. Then, the Filipino people may actually get to benefit in full and on time from the budget that PNoy strong-armed Congress into passing in full and on time.

Ricardo Saludo heads the Center for Strategy, Enterprise & Intelligence (ric.saludo@censeisolutions.com), providing expertise in strategy and management, enterprise development, intelligence, Internet and media. –Ricardo Saludo, Manila Times