The economy is slowing
December 2, 2011 at 18:11
This is a re-posted opinion piece.
From January to September this year, economic output grew by 3.6%, way below the lower end of the governmentís revised target of 4.5% to 5.5%, and only half of its aspirational growth target of 7% to 8%. By contrast, the economy grew by 7.3% last year, way above its long-term growth. The economy grew by 6.5% and 7.3% during the third and fourth quarter of 2010, respectively. Since public policy works with a lag, it would be improper to argue that the growth in the second half of 2010 was a result of the change in leadership.
But President Aquino is clearly responsible for the economic performance from January 1st 2011 onward, six months after he assumed office. However, the numbers are not encouraging: GDP grew by 4.9% in the first quarter, by 3.4% in the second quarter, and by 3.2% in the third quarter. The trajectory is not encouraging.
With the domestic economy decelerating for the third consecutive quarter, the economy now appears to be heading to another downgrade — plausibly a growth of between 3.3 to 3.9%.
The industrial sector was the weakest, contracting by 0.2%. Because of government underspending in public construction, the sector shrunk by 12.2%.
Not surprisingly, public construction plunged by 21.3%. But what is equally worrisome is that even private construction has started to contract — by 7.8% in Q3.
Agriculture has grown moderately, by 1.8%, but its expansion was mostly base effect. Last year, agriculture contracted by 2.6% in Q3. This year, palay production expanded by 19.7%, but it came from a 23.8% contraction last year. The reality is that despite the seemingly impressive growth in palay production, the level of output in the third quarter of this year was still way below last year’s output level.
In the services sector, the real estate, renting and business activities continued to expand. But while real estate grew robustly by 15.9%, ownership of dwellings inched up by 2.4%. This industry should be carefully watched. It’s future performance would depend on the health of the BPO industry and propensity to invest in real property by OFWs. The latter is not immune to the slowing world economy.
The Aquino administration was quick to blame the harsh world economy. That’s a classic case of passing the buck.
True, exports have slowed significantly. Blame that to export’s heavy dependence of electronics products. From about two-thirds of Philippine exports, electronics products now account for less than half. But the fall in electronics exports could be structural. How else can one explain the rise in exports of our ASEAN even as Philippines exports fall?
Exports diversification should be one of the objectives of the Aquino government. It is now happening not by design, but as a result of changing market structure.
The harsh reality is that the strongest reason for the economic slowdown is self-inflicted. A big chunk of its infrastructure budget remains unspent and the promised projects undelivered. I estimate that by the end of the year, about half of the budgeted infrastructure program would be unspent.
During his first state-of-the-nation address, about 17 months ago, Aquino promised that 10 public-private partnership (PPP) initiatives will be bid out before the end of 2010. Today, none has been bidded out. There is a strong likelihood is that a few PPP projects will finally take off by the middle of next year, two years after Mr. Aquino assumed the presidency.
With the PPP initiatives sputtering, the pressure in on publicly provided projects. But that too was caught in the bureaucratic maze. The difference between planned and actual spending continue to widen.
After nine months, some P176.9 billion was programmed for public infrastructure and capital outlays. But actual infrastructure spending was only P86.1 billion. Some 90.8 billion remain unspent for a 51.8 percent deviation. Panic has set it. DBM sliced and diced the budget and came up with a P72 billion fiscal stimulus package.
With the year fast coming to a close, I estimate that some P100 billion allocated for public infrastructure and capital will remain unspent. That’s the bad news.
But the good news is that the unspent amount will spillover to 2012. This assumes that the Aquino administration would implement the 2011 infrastructure program as approved by Congress, rather than having the spending programmed drastically altered to accommodate new programs.
An unspent 2011 infrastructure and other capital outlays on top of some P265 billion infrastructure program would add up to a whopping P365 billion for capital spending.
That’s a large enough budget to make a difference in a P10-trillion economy. Much better if the bulk of which is spent during the first six months of the year, the dry months which are ideal for infrastructure spending.
Imagine the effect of such massive infrastructure spending on the economy and its people. The construction business will be operating in overdrive mode. Factories will be churning cement, steel, wood products, paints and other construction input. Several hundred thousand jobs will be created in urban centers and rural communities all over the county. Banks will be energized as lending to construction and construction related businesses increases.
Higher incomes from construction and services activities will create more consumption which will generate second- and third order multiplier effects.
Equally important, the huge infrastructure spending could slowly close the infrastructure gap. Remember the Philippines was ranked 57 out of 58 countries in recent IMD International Competitiveness Report. The government’s goal should be to do as much catching up to do so that it will be in a better position when the world economy recovers.
But the government should strive to get the best value for its limited resources. The recently announced productivity enhancement incentive (PEI) of P10,000 per government worker for a total of P11.7 billion does not fit this mold. For some, it represents a misuse of hard-earned taxes.
I don’t want to be the Grinch who stole Christmas, but I think the P11.7 billion could be put to better use. This year, government workers have just received the third installment of a generous salary adjustment plan. Giving generous incentive to public sector workers at a time when one of four workers are either unemployed or underemployed is the height of abuse of power and insensitivity. The citizen-voters — President Aquino’s bosses — will surely condemn it. They might ask: what have government workers done to deserve the PEI? With priority projects being stalled, why should they be rewarded with cash incentives?
There are better uses for the P11.7 billion. Let me offer just two alternatives. First, use the amount to make up for the huge backlogs in school buildings and other school facilities. The P11.7 billion would translate, roughly into 23,400 school facilities which school children may start to enjoy sooner than 2014.
Second, distribute The P11.7 billion as tax subsidy or credit for all taxpayers who paid their income taxes in 2009, in proportion to the amount of their taxes paid. About two million taxpayers will be benefited. The subsidy will be a reward for those who paid their taxes even during a difficult year.
The widespread benefits, and the multiplier effect, of any of the two proposals could be massive.
Fiscal authorities should show more prudence in disbursing public funds. They should not spend public monies even for low priority funding for the sake of showing higher disbursement record. There exists a universe of more worthy public programs and projects that may need funding next year and in the near future.
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By: Benjamin E. Diokno – Core
Source: Business World, Nov. 29, 2011
To view the original article, click here.
