By Reicelene Joy N. Ignacio, May 29 2019; Business World

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MOODY’s Investors Service cut its Philippine economic growth forecast to 6% for this year from its previous projection of 6.2% due to the delayed approval of the 2019 General Appropriations Act (GAA), which dampened gross domestic product (GDP) growth in the first quarter.

“We did lower our growth outlook as we take into account the budget impasse, the first quarter growth, as well as some of the other things like the external headwinds,” Moody’s Vice President and Senior Credit Officer Christian de Guzman told reporters in Makati on Wednesday, on the sidelines of the Economic Journalists Association of the Philippines (EJAP) and Aboitiz group economic briefing.

“We’re looking at a reacceleration in growth going forward. That means also some degrees in catch-up in terms of budget spending but I think we also want to caution that given the delay, it is probable that they will not be able to fully execute the budget amount, so I think that’s the part of the reason why we think there’s still going to be a deceleration in growth versus 2018,” Mr. De Guzman said.

The economy grew 6.2% in 2018.

The new projection is at the lower end of the government’s target of 6-7% economic growth.

Even though the Bangko Sentral ng Pilipinas reduced policy rates and the bank reserve requirement, Mr. De Guzman said that the central bank is not yet in “easing mode” noting that policy is still currently tight.

The BSP earlier cut its benchmark policy rate by 25 basis points (bps) to 4.5%, and is expected to make the first 100-bp reduction Friday, followed by two 50-bp cut in the next two months, to bring down the reserve requirement rate (RRR) to 16% from 18%.

“Let’s not forget that the policy tightening was 175 basis points. So, the easing so far is 25 bps. I don’t think that it’s quite precise to say that they are in an easing mode yet because the conditions themselves continue to be tighter than they were than this time last year,” Mr. De Guzman said.

“2015, 2014 interest rates were rock solid. We’re not in that situation anymore. We’re looking at a higher rate environment for the Philippines and that actually makes sense… The investment needs of this economy are in excess of its savings and of course interest rates have to go up,” Mr. De Guzman noted.

Meanwhile, Rosemarie G. Edillon, Undersecretary of the National Economic and Development Authority (NEDA), said that the agency wants to work with legislators to press home the need to avoid unnecessary obstacles to spending.

“We have to work with the next Congress in order to redefine what this means… The premise of (an election spending ban) is so you don’t use (the funds) to further your campaign. If this (project) has already been specified for years before, then what’s the point?,” Ms. Edillon said.

The delay in the passage of the 2019 budget forced the government to work with a reenacted 2018 budget until April, when the 2019 Budget was finally signed.

Ms. Edillon added: “What we would need to be is really to be more aggressive in terms of infrastructure projects… With respect to construction, public construction is just on fourth of the entire construction pie. (It will help to) come up with administrative measures like issuing permits faster, more efficiently.”

“If you’re able to bring the private sector to just increase construction by some more, that will actually more than make up for this first quarter delay in public infrastructure projects,” Ms. Edillon said. — Reicelene Joy N. Ignacio