Tempered growth

THE AQUINO administration will most likely miss its economic growth target of 7-8 percent for 2015. This, after the second quarter posted just 5.6 percent. With the lower first-quarter expansion of 5 percent (revised downward from 5.2 percent), the first half of 2015 could only register a 5.3-percent growth in gross domestic product (GDP). This means the economy must grow by at least 8.7 percent in the final two quarters to hit even just the lower end of the government’s target.

The administration’s chief economist, Arsenio Balisacan, has admitted that even 7 percent is very hard to achieve and that it is more realistic to look at 6-6.5 percent for full-year GDP growth in 2015. The government’s economic managers will be meeting soon to decide on a new target for the year, and it is very likely that they will scale down the original one.

According to the Philippine Statistics Authority, the 5.6-percent growth in the second quarter was mainly driven by the services sector, which accelerated to 6.2 percent from 5.9 percent. But the agriculture sector, with its dismal 0.4-percent expansion, pulled down the GDP growth. The second-quarter growth was also lower than the 6.7 percent reported in the same period last year. The Philippines thus slid to become Asia’s third fastest-growing economy after China and Vietnam.

Moving forward, the prospects for the country are not that bleak. As far as the China scare is concerned, for example, the Philippines is expected to survive it with very minimal damage. Finance Secretary Cesar Purisima has pointed out that of 10 Asian economies, China’s economic slowdown would have the least impact on the Philippines. While trade with China has grown in recent years, China’s share in the Philippines’ total trade with the world is just 12 percent. The country’s growth drivers such as remittances and business process outsourcing (BPO) earnings also have minimal links with China’s economy. Last year, remittances from China amounted to $31 million and accounted for only 0.1 percent of total remittances. Revenues from remittances and BPOs are forecast to reach $47 billion this year, a big boost indeed to the economy.

Outside of external forces that the government has very little hold of, there is one area where it can truly spur economic activity and help lift the GDP growth figure for the second half of 2015. That is by ramping up public spending. Government expenditures should play a bigger role in boosting economic activity in the second semester, given what Purisima had described as “ample fiscal space in the P2.6-trillion 2015 budget to fund growth-inducing investments.”

Government spending actually picked up in the second quarter, rising 3.9 percent from only 1.7 percent in the first three months. Public construction also rebounded from a 24-percent contraction in the first quarter to a 20-percent expansion from April to June. However, first-half expenditures expanded at a slow pace of 9 percent to P1.07 trillion from P987.7 billion last year. This was 14-percent lower than the programmed P1.25 trillion. The government also had a surplus of P13.7 billion in the first half of 2015, when it was actually programmed to incur a deficit.

Beyond 2015, there are of course several challenges that the Philippines must hurdle to sustain economic growth. The most important is infrastructure development, particularly transportation networks and power. The port congestion and the horrendous traffic everywhere are solid proof of the inadequate infrastructure in the country. Since the country is regularly visited by natural calamities, the government should also improve its capability to respond to disasters to mitigate their impact on the overall economy.

In the meantime, the Aquino administration should focus on improving its capacity to spend what has already been budgeted. The government must now triple its efforts to address issues on spending bottlenecks, especially for public infrastructure, which held back growth in the first quarter to its slowest since 2011.

It cannot forever use President Aquino’s “daang matuwid” slogan as an excuse for its anemic spending, in the process depriving the citizens of the necessary roads and bridges, schools and hospitals and other vital public services.