Falling GDP

The sobering news that the country’s gross domestic product (GDP) grew by just 5.6 percent in the first quarter of the year went largely unmentioned in the frenzied last days of the election campaign.

The slowdown in economic expansion came as no surprise to the government’s  economic team, and it had a ready culprit to blame: the delay in the approval of the  2019 budget, which forced the government to operate on a reenacted budget.

“As we have forewarned repeatedly, the reenacted budget would sharply slow the pace of economic growth,” lamented Socioeconomic Planning Secretary Ernesto Pernia, the country’s chief economist. Had this year’s budget been implemented on time, the economy should have grown by up to 6.6 percent during the first quarter, he said.

The impasse since the latter part of 2018 between the two chambers of Congress stalled the passage of the P3.7-trillion budget for this year, as congressmen and senators traded barbs over allegations of pork-barrel insertions and other last-minute alterations to the bill. The measure was signed by President Duterte only last April 15. Wasted were the first three months of the year, considered the best time for construction activities because of the dry weather.

As the government spent less than what it had originally planned under the 2019 budget, public construction contracted by 8.6 percent in the first quarter, while total public spending growth slowed to 7.4 percent from 13.6 percent a year ago. Likewise, the constraints impeded, among others, the Department of the Interior and Local Government’s construction of police stations and purchase of new equipment, and the Department of Education’s repair and rehabilitation of school buildings.

It also did not help that the Commission on Elections (Comelec) failed to act on the economic team’s request made last February to exempt from the election ban 145 big-ticket national projects on top of 603 infrastructure projects of the Department of Public Works and Highways.

Finance Secretary Carlos Dominguez III, who heads the Duterte administration’s economic team, earlier estimated that the government underspent more than P1 billion a day on public goods and services when it operated under a reenacted budget. The delay is said to have eventually slashed 1 percentage point from the country’s economic growth potential in the first quarter, resulting in the 5.6-percent GDP that represents a four-year low—and, for an election year, “the first time in at least two decades it has grown below 6 percent,” pointed out economist and Inquirer columnist Cielito Habito in last Tuesday’s column.

However, “closer examination of the GDP data suggests that there’s much more to the slowdown than the budget delay,” he added, citing in particular the marked slump in agriculture.

Indeed, the agriculture sector, which accounts for about a third of the entire economy, posted a dismal performance in the first quarter of the year, with the value of farm produce posting its first decline since 2016. According to the Philippine Statistics Authority (PSA), agriculture grew by just 0.67 percent during the three-month period compared to 1.08 percent in the same quarter last year. In 2018, the Department of Agriculture had set its annual growth target at 4 percent, but the sector grew only by 1.04 percent. For this year, it is aiming to grow by 3.5 percent.

The foreign trade picture was not that rosy, either. From January to March, Philippine exports slid 3.1 percent year-on-year to $16.38 billion while imports grew 4.7 percent to $26.18 billion. Surging imports widened the trade deficit by 21 percent from $8.1 billion in the same three-month period last year.

The Duterte administration has just reaped an unprecedented landslide victory in the midterm polls, ensuring that its programs and policies will receive robust support from its supermajority coalition in both houses of Congress. On the economic front, the challenge for it in the last half of its term is clear: Arrest the growth slowdown, shore up agriculture and other struggling sectors, and create more jobs—especially because the 394,000 net new jobs created in the first two and half years of this administration amount to a feeble job generation record compared to the two previous presidencies (based on the PSA’s quarterly Labor Force Survey: Benigno Aquino III—1,655,000 new jobs, July 2010-January 2013; Gloria Macapagal Arroyo—1,923,000, July 2004-January 2007). As Habito emphasized in an earlier column: “The World Bank and other analysts are right: Our primary economic challenge remains creating quality jobs.”