Business World, 15 May 2012


With some of the reforms put in place after the EDSA 1 people power revolution, it is reasonable to argue that the long-term growth of the Philippine economy is around 4.5%. But with the ongoing Great Recession and a world economy facing “new” normal (slower) growth, the domestic economy might be facing a below-normal growth.
For the first quarter of 2012, the Philippines economy might have grown 3.9%, lower than the consensus annual gross domestic product (GDP) growth forecast of 4.2-4.5%.

This slower growth forecast is a large departure from what the economic managers and private think tanks have in mind. They forecast economic growth exceeding 5% in the first quarter of 2012. Their rosy forecasts are based on the perception that government spending has picked up and exports have recovered strongly.

But a growing body of new evidence supports the view that economic growth will be lower than planned. Public construction is not moving fast enough, and its level so inadequate, to make much difference in a private-sector dominated construction industry. Exports, based on first quarter numbers, suggest a recovery, but a rather weak one. And the agricultural sector has grown rather sluggishly.

Recent fiscal numbers suggest that the government continues to have problems spending what has been programmed. For the first quarter of 2012, it planned to spend P335.4 billion, net of interest payments. But it actually spent only P296.4 billion, or P39.0 billion less. That’s an underspending of about 12%.

I’m sure the optimists based their rosy growth forecast on the announcement by budget officials that they have already released 69.2% of the 2012 budget as of April 30, 2012.

But there’s a huge difference between budget releases and actual disbursements. Having the budget “released” does not mean that the same has been disbursed.

For example, P425.1-billion budget for personal services (that is, for salaries, wages and other benefits) has been released out of total appropriations of P426.2 billion for the same expenditure category. That’s 99.8% released, and that’s impressive on paper.

But actual disbursements are much less. Yet it gives the illusion that government funds are moving faster. Unfortunately, one can’t pay the salaries and wages of government workers unless services have been rendered.

After a review of first quarter spending performance, and recognizing that appropriated funds are being used rather slowly, the Aquino administration had decided to implement the salary adjustment under Salary Standardization III in June — a month earlier — rather than in July as originally planned. That’s good news for government workers but bad news for the potential beneficiaries of slow-moving government programs and projects.

But public construction remains stalled at the level of implementing agencies (DPWH, DoTC, Energy, Department of Agriculture, and DepED for the school building program).

And there’s very little progress as far as the public-private partnership (PPP) projects are concerned. My own guess is that after the big PPP projects are finally bid out and awarded, it will take another six months to one year before real construction activity takes off the ground. Detailed engineering and carefully designed mobilization plans have to be prepared after the contract award. Realistically, PPP projects will have no significant impact on the economy this year. If at all, they would take off in 2013.

The optimistic forecasts on exports growth were based on the double-digit February exports growth numbers. But the slight decline in exports in March doused hopes of a strong export recovery. For the first quarter of the year, exports grew by 4.6%, slightly less than the official forecast of 5% exports growth in 2012.

A strong exports growth this year is unlikely because of the continuing appreciation of the peso and the still-volatile, uncertain, and slow-growing world economy. And while export diversification is the appropriate government response, it has not happened and won’t happen overnight.

The diminished agricultural output is a major downer. Agriculture, which accounts for slightly more than 12% of economic output, had lost steam in the first quarter, after strong performance a year ago. In the same period last year, the sector grew 4.2% (crops by 6.2%, fishery by negative 3.7%), its fastest quarter growth since 2004.

The Department of Agriculture authorities estimated that agricultural output grew by 1.08% year on year in the first quarter. Fishery output contracted but was offset by modest expansion in crops, livestock and poultry. That’s bad news for the economy which is aspiring to grow at a rapid rate of 5-6%. For the first quarter of the year, the agriculture will be a drag on the economy.

A slowing agricultural sector spells bad news for a large majority of Filipinos, too. Population growth continues to outgrow agricultural output. With population growing at 1.9% (approximately 1.8 million Filipinos every year) and agriculture growing at 1.0%, this could mean rising hunger for many Filipino families.

The first quarter of 2012 is history. Based on more recent data and economic twists and turns, here and abroad, I think the Philippine economy grew by slightly less than 4%in the first quarter. In order to meet the optimistic 5-6% GDP annual growth, the economy has a lot of catching up to do.