We, the economic managers, remain committed to the pursuit of sustained and inclusive growth through fast implementation of the government’s programs and projects to make up for lower-than-planned state spending in the first quarter due to the delay in passage of the 2019 budget.
Today, the Philippine Statistics Authority reported that the Philippine economy grew by 5.6 percent in the first quarter of 2019. This is the slowest growth rate recorded in 16 quarters, since the 5.1 percent growth recorded in the first quarter of 2015. Nonetheless, despite the limitations of a reenacted budget, the Philippines remains among one of the region’s fastest-growing economies.
The budget impasse in Congress during the first three months of the year set off a spending cutback, which, in turn, stifled economic activity. The Senate-House deadlock over the 2019 General Appropriations Bill forced the government to operate on a reenacted 2018 budget for the entire first quarter. This resulted in underspending of about P1 billion pesos per day, equivalent to P80-90 billion in disbursements for the first quarter of 2019.
Were it not for this, the economy could have received a tremendous boost from much higher state spending on infrastructure modernization and human capital development projects at the onset of 2019. In anticipation of this, the Development Budget Coordination Committee (DBCC) in March 2019 adjusted the GDP growth target for the year from the original 7-8 percent to the 6-7 percent range.
By our estimations, the Philippine economy should have grown by at least one percentage point higher, at 6.6 to 7.2 percent in the first quarter, if the 2019 fiscal program had been approved on time.
Comparing the 2018 and 2019 first quarter performance of the government, we see that Government Final Consumption Expenditure weakened, growing only by 7.4 percent versus 13.6 percent in 2018. Public construction contracted by 8.6 percent. For instance, the Department of Education’s repair and rehabilitation of school buildings was severely hampered.
To reach the full-year growth target of 6-7 percent, the economy will need to expand by an average of 6.1 percent over the next three quarters. This target is still within reach, should the private sector sustain its current performance and government be able to jumpstart and speed up the implementation of its new programs and projects.
On the supply side, both industry and agriculture sectors posted slower growth.
The slowdown of the agriculture sector requires effective solutions to increase production in the short-term, and build resilience in the longer term, which will require changes in the production and processing practices in the sector. Part of this involves the comprehensive implementation of the Rice Liberalization Act, including the programs and work plans of different agencies who will receive funding from the Rice Competitiveness Enhancement Fund. We will also closely monitor the effects of the El Niño phenomenon, which is projected to continue until August of this year.
Meanwhile, private construction also slowed down, which is expected given the business cycle of the sector. However, if government is able to quickly implement reforms that reduce the cost of doing business, then the uptick in private construction may happen even sooner. Amendments to the Foreign Investment Act, the Public Service Act, and the Retail Trade Liberalization Act will also encourage investments in industry and services, and boost private construction as there will be greater need for factories and office spaces. Foreign investments will also be encouraged with the Philippines’ international credit rating upgrade to BBB+, historically the highest for the country.
On the demand side, we note the acceleration in household spending at 6.3 percent. We expect private consumption to remain robust with the continued moderation in inflation and more upbeat consumer sentiment over the quarters ahead.
As we have already mentioned, the delay in the approval of the 2019 budget weakened domestic demand. The government assures the public that we will quickly implement and disburse the fiscal program as indicated in the 2019 General Appropriations Act (GAA) to make up for lost time.
In this regard, in the President’s Veto Message for the FY 2019 GAA adopting the implementation of the cash budgeting system, government agencies were nevertheless allowed to implement and pay for new infrastructure projects until December 31, 2020, provided that the funds for the purpose are obligated not later than December 31, 2019.
Economic growth is expected to finish stronger for the rest of 2019 as the government puts ‘Build, Build, Build’ on the fast lane, taking into account possible adverse weather conditions, and as domestic consumption picks up amid cooling inflation.
As the executive branch exhibits its commitment to executing projects under the 2019 budget, so too do we call on Congress to remain responsive to the needs of Filipinos and conscientious in the timely passage of future budgets.