NEDA flags growth risks

MANILA, Philippines — The onslaught of the peak typhoon season, increased power interruptions, and weak absorptive capacity of local government units (LGUs) pose an immediate risk to economic growth this year and beyond, the National Economic and Development Authority (NEDA) said.

During a budget briefing at the House of Representatives yesterday, Socioeconomic Planning Secretary and NEDA chief Ernesto Pernia said there is still reason for optimism that the lower end of the government’s economic growth target of six percent to seven percent this year will be met as the government ramps up spending for infrastructure and programs following the delayed enactment of the national budget for this year.

He reiterated his earlier call for the timely passage of the 2020 national budget so as not to derail growth next year.

“We have to be optimistic. The marching order is really to speed up government spending on infrastructure,” he told lawmakers.

Due to the slower-than-expected growth of 5.5 percent in the second quarter, economic output has to grow by 6.4 percent in the second half to hit the lower end of the growth target for the year of six percent.

Growth prospects in the second semester, however, may be dampened by several factors including the prevailing typhoon season which extends until October.

Citing projections by the Department of Energy, Pernia also cited the expected greater occurrence of power supply disruptions in the third quarter.

Further delays in the implementation of infrastructure projects because of “administrative and climate constraints” also contribute to risks for the remainder of the year and beyond.

Pernia likewise noted that last year’s Supreme Court ruling granting local government units (LGUs) a share from all taxes collected by the national government – and not only the internal revenue allotment (IRA) – poses a near-term risk to the economy because of the weak absorptive capacity of most LGUs.

“In line with the Supreme Court ruling on Mandanas case, the absorptive capacity of LGUs to carry out devolved functions may pose a risk in terms of the performance of the economy as a whole,” he said during the briefing.

“I’m sure that there are LGUs that are very good in absorbing funds. But they are not equal. I think that is shown by LGUs that have barriers to entry that are not from the locality. That is why they are not improving,” he added.

The ruling stemmed from the petition filed before the Supreme Court in 2012 by former Batangas congressman and now Governor Herminaldo Mandanas alleging that P500 billion in IRA had not been released to LGUs from 1992 to 2012.

Pernia said last year that enforcing the ruling would leave the national government with less funds for its huge infrastructure program, and other social expenditure like free tuition for state universities and colleges.

Other risks to growth in the near-to-medium term include the remaining rigidities in the labor market that must be addressed by effective policies so the country can attract more investments.

On the advice of economic managers, President Duterte recently vetoed the Security of Tenure Bill that seeks to end illegal contractualization of labor. 

Congress is now working on a new version.

Likewise, uncertainties in the country’s business environment as the administration pushes for the passage of several key economic reforms which include those related to easing the entry of foreign investments and the remaining packages of the tax reform program.