IT is said that in solving a problem or confronting a challenge, identifying the cause is already halfway through its solution. So there’s a positive way of looking at the slowdown in economic growth last year and at the beginning of 2015.
The Philippines has been touted as “Asia’s rising star” because of robust growth in recent years. The 7.2-percent growth in 2013 made the country the second-fastest-growing economy in Asia Pacific after China, and the fastest among the major economies of the Association of Southeast Asian Nations (Asean).
In 2014, however, growth in terms of gross domestic product (GDP) slowed down to 6.1 percent, lower than the government’s target of 6.5 percent to 7.5 percent. The slowdown was attributed to government underspending.
The slowdown continued in the first quarter of 2015, when GDP grew by 5.2 percent, down from 6.6 percent in the fourth quarter of 2014 and from 5.6 percent in January-March 2014.
Government spending on public goods and services totaled P504 billion for the first quarter of 2015, about 13 percent short of the P582.2-billion spending goal.
Public construction during the first quarter of 2015 dropped by 24.6 percent to P56.37 billion compared with P73.93 billion in the same period in 2014. In contrast, private construction increased by 16 percent to reach P279.3 billion compared with P240.6 billion in the first quarter of 2014.
Following the release of the GDP report for the first quarter, the economic managers admitted that the slower-than-expected growth was due to government underspending, particularly on infrastructure.
In fairness, the slowdown in GDP growth was also partly due to the lackluster performance of the export sector. Merchandise exports dipped by 0.2 percent to $14.25 billion in the first quarter of 2015 from $14.28
billion a year ago.
The government is maintaining its full-year growth target of 7 percent to 8 percent for 2015 and 2016. Accelerating spending, particularly on infrastructure, is crucial in the remaining quarters of 2015.
President Aquino, according to a statement from Communications Secretary Herminio B. Coloma Jr., directed the executive departments to accelerate the implementation of their respective spending programs to boost economic growth.
In other press reports, the Department of Budget and Management (DMB) gave assurances that government spending would increase in the second half of the year.
Last month the Department of Finance delivered a positive report: Public spending for infrastructure and capital outlay increased by 40 percent to P23.3 billion in April. The amount brought to P91.9 billion the total infrastructure disbursements for the first four months of 2015.
The DBM noted that the Department of Public Works and Highways, the primary agency that implements infrastructure projects, showed significant improvement in funds utilization, from 54.5 percent in April 2014 to 77.7 percent in the same month this year.
Still, the Philippines has to work harder. According to the World Bank’s 2014 Logistics Performance Index (LPI), Philippine infrastructure is the worst among the six Southeast Asian nations, including Singapore, Vietnam, Indonesia, Malaysia and Thailand.
Infrastructure is one of the components of the LPI, which measures the on-the-ground efficiency of trade supply chains, or logistics performance. The other components are customs, international shipments, logistics quality and competence, tracking and tracing and timeliness.
The 2014 LPI ranked the Philippines No. 75 among 160 countries and the lowest among four peers in the Asean. Malaysia is ranked 26th, Thailand 30th, Vietnam 44th and Indonesia 56th. Among the numerous economic indicators, investors generally look first at a country’s GDP growth when they evaluate the opportunities for investing. If GDP growth rate is high, the perception is that the economy is doing well.
For the Philippines there are two reasons high GDP growth is important: 1. High GDP growth will allow the benefits of economic gains to trickle down to the poor segment of the population; 2. High GDP growth encourages investments. There is no argument: 7 percent is better than 5 percent. Thus, accelerating spending is not just a solution to the slow GDP growth; it is also an opportunity to sustain and increase the benefits from economic growth.
To be continued
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