Economic growth in the first quarter may have “paused” to 5.6 percent, but I believe the Philippines is poised to regain its robust pace in the next three quarters. The country’s economic managers, and monetary authorities as well, are beginning to pump-prime the economy to keep the growth target of 6 to 7 percent this year back on track.
The twin moves of the Bangko Sentral ng Pilipinas (BSP) to lower the borrowing rates and reduce the reserve requirement on banks can be considered a timely stimulus package after the curb in government spending in the first four months of the year.
By reducing interest rates, the Monetary Board of the Bangko Sentral has given financial markets a concrete assurance that the high inflation rate story seen in the latter part of 2018 is now over. Lowering the reserve requirement ratio of universal and commercial banks by 200 basis points within two months to 16 percent from 18 percent will inject more liquidity into the financial market.
The lower reserve requirement will release an additional liquidity of about P230 billion into the financial system, based on the P11.576-trillion deposits held by universal and commercial banks as of end-2018, as reported by the Philippine Insurance Deposit Corp.
The Bankers Association of the Philippines agreed the RRR cut was appropriate as this would help boost the economy. “The 2 percent cut in reserve requirements recognizes the BSP’s effectiveness in strengthening the country’s banking system. It is a bold move, coming on the heels of a policy rate cut, but equally appropriate given how our financial system has advanced under the BSP’s stewardship,” says BAP President Cezar Consing.
The key to a more robust economic growth is increased government spending. This will essentially pump-prime the economy, generate additional jobs and spur consumer spending.
The economic Cabinet cluster to this end has taken a proactive stance to sustain our economic growth momentum. The cluster held a recent meeting to formulate a carefully crafted and bold expenditure catch-up plan to achieve a GDP growth rate of above 6 percent this year.
Finance Secretary Carlos Dominguez III has taken the initiative to rally the economic Cabinet cluster and keep the growth momentum. The delay in passing the 2019 budget during the first three months of this year, he says, hit our economy hard. “Public spending plays a crucial role in supporting the rapid expansion of domestic economic activity. This led to our GDP growth rate for the first quarter to fall below expectations, a four-year low of 5.6 percent,” says Dominguez.
As we all know now, the deadlock over the 2019 General Appropriations Bill forced the government to operate under a reenacted 2018 budget in the first quarter. The economic Cabinet cluster noted that the economy could have received a tremendous boost from what should have been much higher state spending on infrastructure modernization and human capital formation at the onset of 2019.
Finance Undersecretary Gil Beltran said the economy should have grown by 7.2 percent in the first quarter, adding that the underspending of P69.5 billion in the first quarter reduced GDP growth by 1.6 percentage points.
Obviously, as our finance secretary noted, the government must accelerate its expenditures in the months ahead to achieve an economic growth of more than 6 percent this year.
“To enable us to hit a GDP growth rate above 6 percent this year, national government needs to ramp up its spending. In 2019, national government disbursements are targeted to reach P3.774 trillion, equivalent to 19.6 percent of GDP. This is 10.7 percent higher than the actual disbursement in 2018,” says Dominguez after the Economic Development Cluster meeting. “For us to achieve this year’s disbursement target, the government must spend a total of around P2.996 trillion from the second to the fourth quarter of the year,” he adds.
Infrastructure spending will certainly account for a huge chunk of the spending catch-up plan. The government, according to Dominguez, must disburse around P792.97 billion for infrastructure from the second to the fourth quarter of the year to achieve the total infrastructure disbursement target of P1 trillion for the entire year.
I have confidence in the government that it will pursue this massive spending program. The administration of President Rodrigo Duterte, as it has proven in the past, will pursue its “Build, Build, Build” program with more vigor to recover lost ground./PN