Business World, 14 July 2015


Faced with a P3-trillion budget next year, legislators should ask President Aquino’s men how they intend to finance the budget. But first, they may want to ask Mr. Aquino et al. how they can justify such a mind-boggling budget given their history of underspending, which is estimated at around P500 billion from 2011 to 2014?

Philippine economic managers stubbornly insist that the economy would grow by 7% to 8% this year. And despite the fast deteriorating external and internal environment, they also insist that the economy will grow 7.5% to 8.5% in 2016. Are they blind or just waiting for the right time to adjust downward — the right time being after President Aquino’s final State of the Nation Address?

Perhaps, Mr. Aquino’s economic men would like to give the President his last opportunity to boast that the economy was a bit livelier during his watch. The potentially embarrassing possibility, however, is that the Philippine economy might be normalizing at around 6% during this final two years.

The economy grew 5.2% in the first quarter this year, a major disappointment to administration officials to say the least. The lower-than-expected GDP growth and the grimmer external and internal factors have prompted international financial organizations, major foreign banks, and credit-rating institutions to downgrade their outlook for the Philippine economy.

The outlook for the world economy has turned gloomy. The Euro zone is slowing because of the uncertainty owing to the pestering Greek debt problem. China, which is the second biggest economy in the world and the Philippines’ second trading partner, is heading south.

All of a sudden, the external economy cannot be expected to be a source of growth. The evidence of a slowdown is self-evident. Government authorities project that exports would grow by 8% this year. In fact, total exports fell by 5% from January to May — to $23.5 billion this year from $24.8 billion last year. Philippine exports plunged 17.4% in May, its lowest level in three-and-a-half years.

Foreign direct investments (FDIs), which is a good source of decent employment, have contracted too. The Bangko Sentral ng Pilipinas (BSP) officials projected net FDI inflows to reach $6 billion this year, up from an initial estimate of $5.3 billion reached in November 2014. In fact, from January to April, net FDI inflows shrunk by 48.3%, from $2.386 billion last year to $1.234 billion the same period this year.

Manufacturing output continues to tumble. Agricultural output growth of 1.6% in the first quarter will continue to be challenged by the prolonged and more damaging El Niño phenomenon.

The state of public infrastructure remains poor. Shortage in electricity and air transport persist. The urban transit system is worsening. The private-public partnership (PPP) initiative has barely progressed. The few PPP projects that have been contracted out would likely be finished after Mr. Aquino’s term.

The administration has been promising speedier implementation of infrastructure projects, but the fruition of such a promise remains to be a big dud.

Given all these, even the lower end of the official GDP forecast, 7% growth, now seems unreachable.

Both the International Monetary Fund and Moody’s adjusted downward their growth forecast by 0.5%. The global giant bank HSBC had the lowest revised forecast for Philippine GDP growth. It trimmed its forecast to 5.6%, noting that “weak global demand dragged net exports in the first quarter of the year by almost 2 percentage points… resulting in a slower-than-expected GDP growth of 5.2% in the first quarter.”

Of the nine institutions (see graphic), the range of GDP forecast for 2015 is 5.6% to 6.5%, with a mean forecast of 6.1%. That’s nowhere near the lower end of the official forecast of 7%.

As the government prepares the 2016 national budget, the Development Budget Coordination Committee continues to hang on to a rosy projection of 7.5% to 8.5%. Seriously? Responsible fiscal planners and policy makers should recognize the irrationality of holding on to the high growth target. In the face of slowing GDP growth this year, they should be asked to explain the sources of growth for 2016.

A vigorous GDP growth of 7.5% to 8.5% for 2016 suggests a strong revenue collection, which in turn may be used to justify a bigger budget. But what if the high growth assumption did not materialize — that is, the economy was to grow much slower, say at 6%?

Are the economic managers deliberately projecting a high growth prospect in order to justify the P3-trillion budget? With such a huge budget and uncertain sources of financing (the Aquino government’s actual revenues were consistently below planned revenues), are the economic managers willing to have a bigger-than-planned fiscal deficit? If not, then Budget Secretary Butch Abad would have a field day cherry-picking which budget items to release or not to release.

The higher the budget, the bigger the potential abuse and misuse of public funds. Given Mr. Abad’s past record of reallocating the budget to benefit his party mates (see the huge budgets of the Department of the Interior and Local Governments) and nongovernment organization allies (see the huge budgets for the Department of Social Welfare and Development and the Peace Process), and of influencing members of Congress to behave in a certain way, say to impeach and convict the head honcho of a co-equal branch of government, then the proposed P3-trillion budget becomes a potent tool for political domination.

In the past five years, our legislators have failed to exercise their power of the purse. Congressmen and the senators passed the General Appropriations Act with very little scrutiny. Worse, both the House and Senate leadership became compliant parties to the abusive Disbursement Acceleration Program (DAP), which the Supreme Court declared unconstitutional.

“No taxation without representation.” This is the essence of constitutional representative democracy. This was the slogan from the 1750s and 1760s that captures the prime grievance of the Thirteen Colonies (of the United States) as they revolt against England. It was one of the causes of the American Revolution. The colonists argued that the lack of representation in the British Parliament was clearly a violation of their rights.

Apply that concept to Philippine democratic institutions. Filipinos elect their representatives to act in their behalf. The Philippine Constitution provides that all money bills — the budget, taxes, and tariff bills — shall originate in the House. There is a strong reason for this provision. The people’s representatives are supposed to make sure that the government does not spend on nonessential items, that every item of expenditure serves public interest. The representatives are also expected to decide that all taxes are reasonable, well crafted, and spent well.

Hence, the people’s representatives disappointed their constituencies when they did not raise a howl as the Executive Department seized the congressional power of the purse through the DAP. Worse, top congressional leaders defended the unconstitutional acts of the President and the budget secretary as the latter disbursed the people’s money without congressional authorization.

That’s quite a letdown. A majority of the people’s representatives surrendered their power of the purse for a few ounces of silver (or pork).

On their final year, the people’s representatives have an opportunity to redeem themselves. They should seriously and conscientiously exercise their power of the purse as rightfully restored by the Supreme Court through its DAP ruling. They should ask Mr. Aquino’s economic men how they intend to finance the P3-trillion budget. They should ask each department head to justify every program and project in their respective budget. The composition of the budget is as important as the size of the budget.

But as a starting point, they should ask executive officials the reason or reasons for underspending in previous years (2011 through 2014) and in 2015. The legislators might ask: How can the department head justify a bigger budget in 2016 when in fact he was unable to spend fully an even smaller budget in the past?

The answers could be either revealing or embarrassing, or both.