Sans debt payments, state spending dips in the face of pandemic

MANILA, Philippines (UPDATE 7 a.m., Sept. 24) — Government spending barely grew last month when a brief lockdown of key urban areas was enforced, painting a bleak picture to what is expected to be a crucial driver for economic recovery from the pandemic.

State disbursements inched up 0.38% from year-ago levels to P283.3 billion in August, the Bureau of the Treasury reported on Wednesday. It was the weakest performance since spending contracted 12.2% last February.

Broken down, actual spending by agencies, or the so-called “productive spending,” declined 0.71% year-on-year to P260.8 billion, the first decline since February bringing spending levels back down to pre-pandemic levels.

There was no explanation for the drop in spending, which came in the face of growing public needs amid the pandemic, although it fell just when President Rodrigo Duterte’s decision to tighten restrictions from Aug. 4 to 18 in Metro Manila and neighboring areas.

“The growth in spending leaves much to be desired, but this was expected given the challenging effort to source and allocate funds for pandemic-related concerns,” Cid Terosa, senior economist at University of Asia & the Pacific School of Economics, said in a text message.

“Government had very little leeway to accelerate spending given the drastic and tragic fall in revenues due to the pandemic,” Terosa added.

With revenues shrinking 13.1% on-year to P243.2 billion, the government’s balance reversed to a deficit of P17.5 billion from last year’s surplus. A deficit indicates the government spent more than the revenues it collected.

That said, economic managers have long been resigned to a potential record-high deficit this year of P1.82 trillion because the costly pandemic response is expected to strain revenues drying up as a result of business closures and consumers unwilling to spend. For Nicholas Antonio Mapa, senior economist at ING Bank in Manila, a ramp-up in spending is yet to materialize.

This matters especially when one would consider that in the second quarter of this year, a growth in state spending was alone in trying to pull up economic performance that nonetheless slumped to a contraction of 16.5% annually. “The 0.4% growth in spending was disappointing,” Mapa said in an e-mail. 

“Government spending, which was the main driver of GDP in 2Q, will likely ease in the second half of the year as government officials pull back on spending to protect fiscal targets,” he explained.

The Treasury, in its report, said the slight uptick in cumulative spending was from health subsidies worth P30.3 billion to the Philippine Health Insurance Corp. But more broadly, data showed that spending rose because of bigger payments to settle debt charges worth P22.5 billion, up nearly 15% year-on-year.

From January to August, spending accelerated 20.8% year-on-year to P2.67 trillion, with agency disbursements rising 22.5% to P2.4 trillion, and interest payments on obligations up 7.8% to P269.6 billion. For the entire year, spending is projected to rise 14.2% to P4.34 trillion by yearend. 

Revenue decline persists

On the revenue front, collections of Bureau of Internal Revenue fell 8.6% to P187.9 billion from a year ago, while Customs earnings slumped 17.2% on-year to P44.4 billion. Non-tax revenues crashed 43.8% year-on-year. BIR and Customs accounted for 95.5% of total revenues last month.

For the first 8 months, total revenues shrank 7.67% to P1.93 trillion. BIR collections sank 10.3% year-on-year to P1.3 trillion, while that from Customs collections slumped faster by 15.6% to P347.3 billion, data showed. 

For the entire year, revenues are seen to drop 19.7% to P2.52 trillion. 

Editor's note: Corrected to reflect that spending performance was worst since February 2020, not June 2019. Added chart and spending details.