The country’s economic managers on Thursday said that they expect government spending to pick up in the second half of the year after analysts tempered slightly their growth projection in the Philippines this year, citing the persistently slow government disbursement.
Finance Secretary Carlos Dominguez said that government spending will start to speed up as government starts disbursing funds for the much-needed infrastructure this year.
“Well, to start with, the projects in Clark will start picking up. The Clark Airport Project start picking up. The railway projects will start moving. And there will be a lot more construction in place,” Dominguez said in a Palace news briefing.
Sharing Dominguez’ views, Budget Secretary Benjamin Diokno likewise said that infrastructure and other capital spending jumped 31.4 percent in May to P46.2 billion from P35.2 billion in the same month last year, with the completion of road construction, repair and rehabilitation projects, as well as flood control facilities.
“It will pick up. The second half will be much better than the first half. Construction is like a curve, it will start slow and then towards the end it will accelerate,” Diokno said, adding that the Defense department’s requirements for the purchase of anti-submarine helicopters also boosted spending during the period.
The DBM said the government spent P117.5 billion for public works in the first three months of the year, or eight percent higher than its revised goal of P108.9 billion.
For the second-quarter, the DBM set an infrastructure spending target of P127.74 billion.
The DBM expects infrastructure spending to rise to P137.79 billion in the third quarter, and to P174.92 billion in the fourth quarter.
While credit ratings agency Moody’s expect the Philippine economy to grow by 6.5 percent this year—matching the low end of the government’s 6.5-7.5 percent target and slowing from 2016’s 6.9 percent —it noted that state spending, net of interest payments, grew by just two percent year on year, which is “far below expectations.”
Moody’s recently affirmed its “Baa2” rating with a “stable” outlook for the Philippines last week, even as it flagged rising political uncertainty which could weigh on investor confidence and eventually affect economic growth.
The Duterte administration plans to spend over P8 trillion on public infrastructure over the next six years, boosting its share to 7.4 percent of GDP from 4.7 percent in 2016.
In the same news briefing, Dominguez remains upbeat that its original proposals to the administration’s comprehensive tax reform package will be included when the debates starts in the Senate, citing the openness of senators to finance the Duterte administration’s ambitious infrastructure program.
“Of course, we want the P162 billion as much as possible and we will still fight for it,” Dominguez said.
“All the senators are reasonable and intelligent people. When they see the real facts and figures, they will, I think, be firmly convinced that it’s—it’s moving forward,” he said.
“We have to explain to them and show them in detail what the program really means. And I believe that they will be enlightened and as good Filipinos, they will vote for this tax reform.”
Dominguez however, said that the latest version of tax reform bill may not support the administration’s push for infrastructure spending, hence, the need to reconcile these with the Senate version that will be tackled soon.
“If you stay where you are now without—without improving your revenues, you might not be able to get the infrastructure program done right,” he added.
Despite these, Dominguez said that they will continue to “respect the legislature in their wisdom and we think that the package of 130 is about okay.”
He argued that the DoF will not agree to further dampen the government’s net revenues to lower than P130 billion, as estimated in the present House version of the bill.
Economic managers had earlier warned of a lower budget plan and revenue target for 2018 following the “watered-down” first package of the administration's tax reform plan, trimming down next year's budget proposal to P3.767 trillion or equivalent to 21.6 percent of the GDP from P3.840 trillion announced in March, along with a trimmed revenue target of P2.841 trillion from earlier projected P2.91 trillion.
Dominguez stressed the need to to build the infrastructure and answer congestion issues before they appear.
“Congestion cost a lot of money. It wastes a lot of time. It makes the quality of life of people deteriorate, okay,” he said.
“So we want to invest in the infrastructure program. Now, to do that, we cannot just invest by borrowing, we have to raise our own money. And this is the reason why we are doing this tax reform,” he added.
Dominguez likewise allayed concerns by some senators who expressed concern over the impact to inflation of fuel and soft drink taxes.
“The fears of inflation I think are overemphasized,” he said. “So the inflationary effects are relatively mild and besides our inflation is really quite benign. It’s been in the low… Actually, inflation last year was 1.9 percent. The latest inflation figure I believe is somewhere around 3.2 or 3.3 percent.”
He said that the economic team has already anticipated such scenarios being raised by the Senators themselves.
“Our program includes assistance to the lowest 10 million families by providing cash transfers directly to them for a year to help them, if there is any serious inflationary effects of the tax program which we doubt very much,” Dominguez said.