When the government reported that economic growth slowed down to 5.6 percent during the first quarter, the lowest in four years, President Rodrigo Duterte blamed bickering in Congress which delayed the budget, which in turn led led to underspending by up to P75 billion.
“So our GDP will really decrease…. If there are no transactions, money will not circulate. The projects of the congressmen were delayed because I vetoed the budget,” he said.
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His economic advisers concurred.
“As we have forewarned repeatedly, the reenacted (2018) budget would sharply slow the pace of economic growth,” said Socioeconomic Planning Secretary Ernesto Pernia, who heads the National Economic and Development Authority (Neda).
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He added that had this year’s budget been implemented on time, the economy should have grown by up to 6.6 percent during the quarter.
Finance Secretary Carlos Dominguez III, for his part, said the government underspent over P1 billion on public goods and services daily when it operated under a reenacted budget.
Pernia is optimistic the economy will recover its pace. “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 is still achievable given the current performance of the private sector and if the government sector is able to jumpstart and speed up the implementation of its new programs and projects,” he explained
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But economists monitoring the Philippines for two groups of economic consultants — Oxford Economics and Capital Economics – are looking also at factors that paint a more pessimistic picture.
The UK-based Oxford Economics forecast a GDP growth below 6 percent for the whole year despite a surger in government spending, because of influences from abroad, such as the US-China trade dispute.
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“While we expect the recent flare up in US-China trade tensions to subside, the probability of renewed escalation between the two countries has risen substantially,” it said in a report by Thatchinamoorthy Krshnan.
For its part, Capital Economics also warned against the effect of the US-China trade tension, plus “a tough external environment and the lagged effects of monetary tightening mean growth is likely to struggle to beat 6 percent this year.”
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Its report, by Capital Economics Asia economist Alex Holmes, noted that “investment growth also slowed and both import and export growth dropped back sharply.”
Among other things, the Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board has since cut the policy rate by 25 basis points (bps) to 4.5 percent.
This is a reversal of the BSP policies which raised key interest rates by a total of 175 bps last year to control the increase in prices of basic commodities—a 10-year high of 5.2 percent—caused by new or higher excise taxes imposed by the government under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, skyrocketing global oil prices, and domestic food supply bottlenecks, especially of rice, according to a report by the Philippine Daiky Inquirer.
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