AS the year comes to an end, the National Economic and Development Authority (Neda) expects government spending to continue to slow for the rest of the year.
Private economists had mixed reactions to this, with some saying it is no cause for worry, while one expert deemed it a “grave concern,” because it signals that resources “have dwindled” considerably.
In a recent briefing, Socioeconomic Planning Secretary Arsenio M. Balisacan said frontloading of government resources due to Covid-19 may have led Government Final Consumption Expenditure (GFCE) to only grow 0.8 percent in the third quarter.
This is the lowest since the second quarter of 2021 when GFCE contracted 4.2 percent. For the first three quarters, GFCE growth was at 5.5 percent, slower than the 6.9 percent posted in the same period last year.
“It is also possible that in response to Covid-19, [government] downloaded its spending much earlier in the first half and so that’s less resources already available in the third quarter and that might be expected also for the fourth quarter,” Balisacan said in the briefing.
Over the weekend, Balisacan told BusinessMirror that the timing of payouts of cash assistance—with the ongoing validation of the beneficiaries of the Modified Conditional Cash Transfer (MCCT) Program of the Department of Social Welfare and Development (DSWD) in July—contributed to the slowdown in GFCE.
One-off expenditures such as the direct payments made by foreign lending institutions for the procurement of Covid-19 vaccines in July last year was another major factor, he added.
The slowdown, Balisacan explained, was minimally tempered by the implementation of the Assistance to Individuals in Crisis Situations (AICS) and the Targeted Cash Transfer Program of the Department of Social Welfare and Development (DSWD) as well as the Rice Farmers Financial Assistance (RFFA) of the Department of Agriculture.
He added that the release of cash allowance for teachers in preparation for the start of face-to-face classes in August this year and releases for the Free Higher Education Program for various State Universities and Colleges were also among the factors that slowed GFCE.
“In short, the ayuda was not sufficient to offset the base effect due to vaccine procurement last year,” Balisacan told BusinessMirror. “Government spending will continue to contribute to economic growth given continued spending for 2021 and 2022 GAA, which contain programs that are geared towards economic recovery.”
Not a concern
For University of Asia and the Pacific economist Victor A. Abola, while the Neda expected this slowdown in government spending, he believes this is not a concern.
Abola said employment and the weaker peso contributed to the increase in third quarter consumer spending and may have “held poor families from starvation/hunger” during the period.
“For Q4 (the fourth quarter) and beyond, government spending will provide a boost to keep recovery intact,” Abola told BusinessMirror.
De La Salle University economist Maria Ella Oplas thinks that while the government outlook may not be as rosy, she expects state spending to increase in the last quarter.
With the year almost over, many government offices may be fast-tracking certain projects in order to not lose funding allocated to them for 2022, she said.
Local government units (LGUs) may also increase spending in the last quarter, spending for Christmas gifts to constituents, and these goods may only be bought in the last quarter, nearer to the holidays, Oplas added.
“I have to see the numbers but intuitively, the last quarter is where people spend the most and that’s the same with the government,” Oplas said. She said historical studies “would back that up.”
‘Grave concern’
For Ateneo de Manila University economist Leonardo A. Lanzona Jr., if government spending is expected to slow, this is a “grave concern” since it indicates government resources have dwindled.
Lanzona added that this becomes an even greater concern if one considers the country’s debts and the economy’s recovery. Bureau of the Treasury data showed government debt service payments have contracted 7.67 percent in the January to September period.
He also thinks lower government expenditures would affect the level of assistance the government can extend to Filipinos, especially at a time when inflation is expected to continue rising.
“The recovery is going to be affected especially because the government intervention in terms of raising productivity will now be lower,” Lanzona told BusinessMirror. “Poverty and social unrest may increase without these social protections despite the enormous political support that the government has.”
Nonetheless, Lanzona agreed with Balisacan that the government’s spending had changed because of Covid-19. He said investments in transport have contributed to increases in gross capital formation given the “dismantling” of lockdowns.
Gross capital formation in the third quarter grew 21.7 percent and averaged 21.1 percent in the first three quarters of 2022. Valuables posted the highest growth under Gross Capital Formation, at 11.2 percent in the third quarter.
Spending on valuables means purchasing heirloom jewelry, antiques, and other similar luxury items, which are often done by richer Filipinos.
“These unexplainable post
pandemic changes have been referred to abroad as ‘discombobulating factors’ emerging from the virus. However, these effects tend to diminish over time and can reinforce inflation,” Lanzona told this newspaper.
“Discombobulations are not expected to last long especially as inflation pressures mount. Long-term changes may be expected in the labor markets as the conditions for decent work worsen,” he added.
Cut the fat
Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III told BusinessMirror that the 0.8-percent growth in GFCE was disappointing, especially since this is significantly lower than the inflation rate which was at 6.9 percent in September and 7.7 percent in October.
Sta. Ana said the slowdown in government spending indicates that the administration does not want to increase the deficit further and accumulate more debt while it pursues fiscal consolidation.
However, he said, this fiscal consolidation must not mean reducing spending to bail out poor Filipinos from rising commodity prices. The government, he added, must keep providing targeted subsidies to poor households.
Sta. Ana said the administration would do well to “cut the fat and the waste” to give more room for necessary expenditures. “Cut the budget for controversial items like unaccountable intelligence funds, excessive counter-insurgency funds, and pork barrel. Reallocate the questionable funds to health, social protection and agriculture.”
However, he said, budget reallocation or realignment is not enough. The government must strive to introduce new revenues “to grow the economy and to ensure adequacy of social protection.”
These new revenues can be created by introducing tax measures similar to Sin taxes which are imposed on products that “are price-inelastic, thus their taxation generates substantial revenues.”
This, Sta. Ana explained, is why he does not agree with the administration’s plan to remove value added tax for certain goods or services like utilities. “This will only worsen the situation; it will aggravate the fiscal problem. The bold yet correct approach is for the administration to take the bull by the horns.”