State spending disappoints at onset of recovery year

MANILA, Philippines — Government spending was a letdown in the first month of the year, putting into question the Duterte administration’s seriousness to rescue the economy from a pandemic-induced meltdown.

What's new

The government disbursed P227.8 billion into so-called “productive spending” or public programs and projects. That was up 8.37% year-on-year, although this was slower than the annual growth of over 10% in December.

Debt interest payments sank 23.4% on-year to P47 billion, moderating overall spending growth to 1.18% worth P274.8 billion in the first month of the year. 

More broadly, slower spending tempered the impact of still-declining revenues that slumped 11.5% to P260.7 billion. As a result, there was a budget deficit of P14.1 billion in January, against last year’s P23-billion surplus.

Why this matters

Economic managers have repeatedly shunned growing calls to spend more for recovery over fears they would have to incur larger debts and finance a ballooning deficit. While this hardline position has kept the Philippines' investment grade rating intact that enables borrowing cheaply, the price was a staggering 9.5% contraction in the economy, heavily blamed on state’s hesitation to spend.

For this year, disbursements are set at P4.66 trillion from P4.23 trillion actually spent last year, with both the 2020 and 2021 national budgets now operating in tandem on top of other modes of stimulus.

What government says

In a speech before one of government’s donors, Asian Development Bank, Finance Secretary Carlos Dominguez said he had no regrets for being “fiscally prudent” during hard times that saw record joblessness and peaking hunger.

“Our strong financial position allowed us to afford a responsible level of deficit spending to cover our COVID-19 response. Although we undertook emergency borrowing to support our budget deficit, our debt load remained within a sustainable threshold,” the finance chief said.

What analysts say

Sought for comment, Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, was disappointed with the latest spending performance, which signaled hardly an improvement from last year.

“This means that disbursements for the quarter would now have to catch up to help in the recovery. With the recent spike in infections and the question of whether to lockdown further due to the rise of cases, there is more pressure to ramp up spending to prevent the economy from further lagging behind,” Asuncion explained in a text message.

But Cid Terosa, senior economist at University of Asia & the Pacific, believes the government's hands are “tied” when it comes to spending. “Lackluster economic performance continues to deny the government much needed revenues to spur greater spending.”

By the figures

• Revenues raised in January reached P260.7 billion, down 11.5% on-year. Broken down, earnings of Bureau of Internal Revenue sagged 6.5% annually to P182.2 billion while the Bureau of Customs generated P47.3 billion, down a bigger 15.4% year-on-year.