When gov’t underspends

Spending less than what has been budgeted may seem favorable to a small household, but when an entire government does so, it deprives its citizens of essential public goods and services such as improved education, better healthcare and more roads and bridges. This has been the problem of the Aquino administration since it took office on an anticorruption platform: Its officials take too much time to ensure that a project or undertaking will stand public scrutiny and pass examination by the Commission on Audit. For concrete proof, consider the deterioration of Metro Manila’s public railway system.

Five years into the Aquino administration, economic growth slid to a three-year low in the first quarter of 2015 as government spending weakened alongside a slump in exports. The gross domestic product expanded by 5.2 percent in the first three months from a year ago, according to the Philippine Statistics Authority. This is lower than what the market expected (more than 6 percent), and is also the slowest since the fourth quarter of 2011.

The culprit? Government underspending. The administration posted a budget deficit of P33.5 billion during the first three months of 2015. That’s 60 percent or P50.6 billion lower compared to a year ago, and also 66 percent or P65 billion below the government’s program. At P504 billion, the first quarter’s expenditures fell short of the government’s target by 13 percent. Excluding interest payments, the government actually registered a surplus of P67.1 billion, reflecting the magnitude of its underspending.

It was the same story in 2014, when the budget deficit was only P73.1 billion, or about a fourth of what has been programmed for the year. It was 55 percent less than the P164.1 billion posted in 2013 and smaller by 73 percent than the P266.2-billion deficit planned for 2014.

Officials attribute the anemic government spending in 2014 to what they called the “chilling effect” of a Supreme Court decision declaring the Disbursement Acceleration Program unconstitutional. The total expenditure last year amounted to P1.98 trillion, or 13 percent below the P2.28 trillion programmed for the year. This means the government did not spend as it should in order to support the investments required to sustain economic growth. Put another way, it did not spend as it should to support such vital public services as healthcare and education, much less to improve the public transport system through new roads, air and sea ports and bridges.

Really, the government has to speed up spending on essential public services and projects as prospects in other sectors get dim. The Bangko Sentral ng Pilipinas, for instance, has raised its inflation forecast for this year and the next due mainly to the weather phenomenon El Niño, noting that more than half of the Philippine provinces were affected by the dry spell. This will affect agriculture, which still accounts for a third of the economy. Also, the economic prospects of the Philippines’ major trading partners, particularly the United States, Japan, China and the European Union, remain uncertain.

On the bright side, economic growth may be supported this year by strong remittances from Filipinos working overseas (currently more than 10 million), falling crude oil prices and upbeat consumer and business sentiment, as well as the start of election-related spending in the last quarter. Multilateral lender World Bank has also not given up on the prospect of robust growth above 6.5 percent this year, “provided that the government can fully commit to utilizing the budget as planned, as well as accelerating reforms.”

Nevertheless, the public needs more than just promises from the Department of Budget and Management that the Aquino administration will take aggressive steps to ramp up public disbursements and bring about faster economic growth. The government has to address the weak absorptive capacity of some agencies that failed to maximize their budget allocations.

With only a year left in office, the administration faces the stiff challenge of bolstering spending to prevent the economy from further slowing down. While government economists remain optimistic about economic prospects for 2015, it appears that the government target of 7-8 percent growth this year is off the table. Unless, of course, the government takes up the slack by speeding up spending on public projects and services.