2019News

Economists count budget delay’s Q1 cost

By Charmaine A. Tadalan, March 28 2019; Business World

https://www.bworldonline.com/economists-count-budget-delays-q1-cost/

Image Credit to Business World

ECONOMIC GROWTH this quarter could hover close to last quarter’s pace but will be substantially slower than the year-ago clip when official data is reported on May 9, according to economists asked on Wednesday, citing primarily the impact of delayed enactment of the P3.757-trillion national budget for this year.

The bicameral dispute over the 2019 national budget — which was supposed to have been enacted by end-2018 — ended on Tuesday when Senate President Vicente C. Sotto III finally signed and transmitted it to the Office of the President on Tuesday, even as he formally noted the Senate’s reservations about P95-billion post-ratification fund allocations made by the House of Representatives.

House Appropriations committee chairman Rolando G. Andaya, Jr. of Camarines Sur’s 1st district on Wednesday stood by the “legality” and “constitutionality” of the 2019 national budget. It is now up to President Rodrigo R. Duterte to maintain or veto the provisions questioned by the Senate. “Kung nais pong i-veto ng Presidente nasa karapatan naman po niya, at taon-taon — kada budget — meron naman po talagang veto message. Ayun naman po’y tinatanggap ng Kongreso at wala naman pong problema (It is the President’s prerogative to veto budget items, as he does yearly through a veto message with every budget. Congress accepts that and there will be no problem),” Mr. Andaya said in an interview over radio station dzMM.

Socioeconomic Planning Secretary Ernesto M. Pernia said on Tuesday that “Q1 growth rate [is] already likely to be trimmed” as a result of delayed budget enactment. The inter-agency Development Budget Coordination Committee the other week slashed its 2019 gross domestic product (GDP) growth forecast to 6-7% from 7-8% originally as the government operates on a reenacted budget, while the National Economic and Development Authority — which Mr. Pernia heads as director-general — has estimated separately that operating on a reenacted budget until April would cut full-year growth to 6.1-6.3%.

Sought for his estimates on first-quarter GDP expansion, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail on Wednesday that the pace would likely be “below six percent to 5.8%.”

“Slower government spending, coupled with likely weaker capital formation due to elevated borrowing costs and base effects will collectively set the bar high for GDP to top the six-percent handle,” Mr. Mapa said.

For Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines, Inc., and Sun Life Financial economist Patrick M. Ella, first-quarter GDP growth could clock in at 6.2% and six percent, respectively, while Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort said it could come in at “at least six percent.”

Those estimates compare with last quarter’s 6.1% and the 6.6% actually recorded in last year’s first quarter.

“This largely looks like the previous quarter’s economic growth and may be due to the lagged impact of slower inflation,” Mr. Asuncion said in a separate email.

The overall rise of prices of widely used goods slowed for the fourth straight month to a one-year-low of 3.8% in February from the nine-year-high 6.7% clocked in September and October last year. Last year saw headline inflation clock in at 5.2%, the fastest in nearly a decade.

“The pick-up in domestic consumption demand is likely to be felt by ending Q2 and beginning Q3 this year,” Mr. Asuncion said, citing the impact of inflation that appears to be finally sliding back into the central bank’s 2-4% full-year target range, with the pace in 2019’s first two months averaging 4.1%.

The Philippine Statistics Authority is scheduled to report March inflation on April 5.

Household spending, fueled partly by remittances from Filipinos working abroad, contributes about 70% of economic output.

RCBC’s Mr. Ricafort said slower growth in government spending due to the delayed 2019 budget enactment was the main drag on growth, offset by bigger business and household spending due to easing inflation and consumption related to the May 13 mid-term elections, among others.

‘WHAT IS LOST IS LOST’
The government had been banking on front-loading infrastructure work this quarter, ahead of the 45-day ban on public works starting March 29 ahead of the May 13 midterm elections and weather disturbances next semester. The reenacted national budget left new projects unfunded.

Finance Secretary Carlos G. Dominguez III told reporters in Clark economic zone on Wednesday that the government is now hard-pressed to catch up with infrastructure work.

“… [I]t is already late. It is already election ban, so I don’t know if they can really catch up. With the awarding of the contracts, election ban [is] two days from now, how can you award a contract?” Mr. Dominguez said.

“The budget is not yet effective, because even if it is all okay, they still have two weeks to publish it,” he added. “Time is lost. What is lost is lost. No matter how much you want to catch up, you can never really catch up especially that the weather has been so good for the past almost three months or four months. Sayang (That opportunity is gone).”

Consequently, the government’s 6-7% GDP growth target for 2019 “becomes less attainable,” Mr. Dominguez said.

“It is like a balloon. You put a little weight in it, it cannot fly as high.”

ING’s Mr. Mapa said all eyes are now on Mr. Duterte, particularly how soon he will sign the 2019 national budget into law and how much of it he may veto.

“Our full-year forecast is currently at 6.3% but if the budget impasse continues and the bill remains unsigned by the President, we may have to revise this slightly lower,” Mr. Mapa said.

“Government spending was one key contributor to growth in 2018 as it helped offset slowing private sector consumption last year. Even if consumption rebounds in 2019, delayed government outlays and weaker capital formation (public construction is part of this) may offset the recovery in household spending.”

For RCBC’s Mr. Ricafort, “Philippine economy/GDP for 2019 could still grow by 6.5-7% for 2019, similar to earlier estimates amid the easing trend in inflation and interest rates in the coming months of 2019 that may increase incomes and spending power of consumers and businesses.” — with Reicelene Joy N. Ignacio

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