The delay in passing the 2019 budget during the first three months of this year hit our economy hard. Public spending plays a crucial role in supporting the rapid expansion of domestic economic activity. This led to our Gross Domestic Product (GDP) growth rate for the first quarter to fall below expectations, a four-year low of 5.6 percent.
Because of the budget impasse, government was forced to work with last year’s budget. This resulted in underspending of around 1 billion pesos per day during the first quarter. By our estimates, 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. This is no surprise as national government spending accounts for around 20 percent of the economy.
This morning, the members of the Economic Development Cluster held a meeting to formulate a carefully crafted and bold expenditure catch-up plan to enable us to hit a GDP growth rate of above 6 percent this year. Key infrastructure agencies presented their updated spending plans for this year. This is to substantially offset the lower spending in the first quarter resulting from both the budget delay and the election ban on public works.
To enable us to hit a GDP growth rate above 6 percent this year, national government needs to ramp up its spending. In 2019, national government disbursements are targeted to reach 3.774 trillion pesos, equivalent to 19.6 percent of GDP. This is 10.7 percent higher than the actual disbursement in 2018. Meanwhile, total infrastructure disbursements would have to reach one trillion pesos, equivalent to 5.2 percent of GDP, with the national government accounting for 808.7 billion pesos of targeted infrastructure spending.
In the first quarter of 2019, actual government disbursements amounted to 778 billion pesos, barely rising from the 772 billion pesos in 2018. For us to achieve this year’s disbursement target, the government must spend a total of around 2.996 trillion pesos from the second to fourth quarters of the year.
Infrastructure spending accounts for almost one-third of the amount of disbursements programmed for the said quarters. Actual infrastructure disbursements in the first quarter of this year amounted to 207.2 billion pesos. To reach our total infrastructure disbursement target of 1 trillion for the entire year, the government must disburse around 792.97 billion pesos for infrastructure from the second to fourth quarters of the year.
The spending commitment of our two main infrastructure agencies–the Department of Public Works and Highways and the Department of Transportation– with an estimated combined amount of 803.1 billion pesos, is enough to cover the national government’s infrastructure target. Infrastructure disbursements from other agencies such as the Department of National Defense (DND), Department of Education (DepEd), and the Department of Health (DOH) can further drive spending growth if they are able to accelerate implementation of their capital outlay programs and projects. Said programs include the Armed Forces of the Philippines (AFP) Modernization Program of the DND, the school-building program of the DepEd, and the Health Facilities Enhancement Program of the DOH.
DPWH and DOTr remain optimistic that they can deliver on their respective commitments by accelerating infrastructure disbursements and implementation of projects. To enable them to attain their targets, it would require close cooperation and support of other government agencies by expediting the approval of permits and other requirements. Hopefully, no major weather disturbance will disrupt the implementation of the projects.
It was also agreed that the government will fast track the implementation of its priority socioeconomic programs, such as the National ID System, 4Ps, social pension, unconditional cash transfers, and fuel marking program.
But aside from the infrastructure and social protection programs, the government also has to double its efforts in the agriculture sector, which should expand by at least 2 percent per year.
Economic growth can also be strenuously driven by the private sector. With this, the Ease of Doing Business Law – which was enacted into law last May 28, 2018 – needs to be implemented with haste to encourage investment and drive growth. The Executive and the Legislative branches of government also need to work together in passing legislation that allows for a business-friendly environment, such as the Public Service Act, Foreign Investments Act, and the Retail Trade Act.
Henceforth, the economy is expected to expand at a higher clip over the April to June period and for the rest of 2019 as inflation continues trending towards the official target range of 2 to 4 percent and the government accelerates implementation of the Build, Build, Build infrastructure and human capital development projects to make up for state underspending. We will intensify our efforts to restore last year’s upward momentum in our growth rate.