NEDA cuts in growth projection too severe — Capital Economics

MANILA, Philippines — Cuts in growth projection made by the National Economic and Development Authority (NEDA) in relation to the prevailing impasse on the passage of the 2019 national budget are “too severe” and may have been intended to sway lawmakers into breaking the deadlock, according to London-based Capital Economics.

“Economic growth in the Philippines is likely to slow unless the 2019 budget is approved soon, but the cuts the government has announced to its GDP growth forecast for this year look too severe,” said the research firm in a research note issued over the weekend.

The government has been running on a reenacted budget since the beginning of the year, effectively stalling planned increases in public investments and salaries of government workers. 

Because of this, NEDA warned last week that growth may slow down to between 4.2 percent and 4.9 percent this year if the government operates on a reenacted budget for the entire year.

Implementing a reenacted budget until April will bring down the full-year gross domestic product (GDP) growth to between 6.1 percent and 6.3 percent, said the agency.

On the other hand, if the budget is passed in August, growth is expected to be around only 4.9 to 5.1 percent.

Capital Economics noted that the 2019 budget lays down an increase in government expenditure of around P100 billion, equivalent to 0.6 percent of last year’s GDP.

“The cuts are much too aggressive… This is hard to square with the NEDA’s new forecasts which knock four points off growth in the worst case scenario,” Capital Economics said.

“We think the growth targets have been revised partly for political purposes and are intended to persuade lawmakers to approve the budget. It also gives the administration an excuse to back away from its seven to eight percent growth target, which always looked too optimistic given the worsening external environment,” it said.

Capital Economics said there will indeed be a need to lower growth expectations for the Philippines if the budget is not passed, but not as much as projected by the government.

“For the time we are keeping our growth forecast for this year unchanged at six percent. If a budget is not released soon, we may have to nudge this down slightly, but by nowhere near as much as the government has,” it said.