Finance Secretary Carlos Dominguez III expects the domestic economy to expand at a higher clip for the rest of the year as inflation continues trending towards the official target range of 2-4 percent and the government accelerates implementation of infrastructure and human capital development projects to make up for the state underspending prompted by the quarter-long delay in the approval of the 2019 General Appropriations Act (GAA).

Given the 2019 budget snag, Dominguez pointed out that the gross domestic product (GDP) growth of 5.6 percent in the first quarter was nonetheless a “decent expansion” that has kept the Philippines among the ranks of the region’s fastest-growing economies.

“The budget impasse in the Congress during the year’s first three months had set off a spending cutback, which, in turn, stifled economic activity,” Dominguez said. “Were it not for the Senate-House deadlock over the 2019 GAB (General Appropriations Bill), which forced the government to operate on a reenacted 2018 budget for the entire first quarter, the economy could have received a tremendous boost from what should have been much higher state spending on infrastructure modernization and human capital formation at the onset of 2019.”

As the Duterte administration was forced to put the originally planned 2019 disbursements on hold in the first quarter, the Finance secretary revealed that state spending fell by some P75 billion in that three-month period—based on an estimate of P1 billion per day—which meant “lost opportunity to fund new infrastructure projects, a setback aggravated by the public works ban this election campaign period.”

In March, for instance, Bureau of the Treasury (BTr) data showed that national government disbursement totaled just P287.3 billion, down by 8 percent or 25.7 billion from the same period last year, partly on account of the congressional delay in the approval of the 2019 GAA.

Dominguez pointed out that state economic managers have anticipated the adverse impact on the economy of the Congress’ budget deadlock and the public spending cutback that it subsequently touched off, prompting the Development Budget Coordination Committee (DBCC) to adjust in March the GDP growth target in 2019 to 6-7 percent from the original 7-8 percent range.

He issued the statement after the Philippine Statistics Authority (PSA) reported that GDP growth for the first quarter of 2019 clocked in at 5.6 percent. The services sector recorded the fastest expansion at 7.0 percent, followed by industry, which grew 4.4 percent, and agriculture, which expanded 0.8 percent in the first quarter.

Services contributed the most to GDP with 4.0 percentage points, followed by industry with 1.5 percentage points, and agriculture with 0.1 percentage point, the PSA said.

On the expenditure side, the major contributors to GDP growth were Household Final Consumption Expenditures (HFCE) at 4.3 percentage points; durable equipment, 1.1 percentage points; and Government Final Consumption Expenditure (GFCE), 0.8 percentage point.

“Economic growth is expected to finish stronger over the April-June period and for the rest of 2019 as the government puts ‘Build, Build, Build’ on the fast lane following the passage of the 2019 GAA and domestic consumption picks up amid cooling inflation,” Dominguez said.

In implementing a catch-up plan to accelerate state investments, Dominguez said ‘the Duterte administration aims to offset the lower spending at the outset of 2019 resulting from the budget delay and the construction ban during the election season.”

“Henceforth, we expect growth to pick up on higher state spending in continuance of last year’s upward momentum,” he added.

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