Slow increase in state spending could threaten growth goal

THE SLOW PICKUP in government spending, coupled with the impact of terror threats in the country, could render the government’s growth goal unreachable this year, a global bank said yesterday.

“Spending growth has slowed sharply this year from 19% in the same period last year. We think it puts at risk the official 6.5-7.0% growth forecast for 2017,” ING Bank N.V. Manila said in a market report released yesterday.

Latest Treasury data released last week showed that the government incurred a P63.6-billion budget deficit as of end- May, narrower than the P75.1-billion gap incurred in the comparable year-ago period. Revenue collections grew by eight percent, while spending went up by six percent in the same comparable periods.

If this trend is sustained, ING Bank said this could result in a lower fiscal deficit, possibly even below the P353.4 billion in 2016 that was equivalent to 2.4% of gross domestic product (GDP).

For 2017, the government has set the deficit ceiling at P482.1 billion, equivalent to three percent of GDP, which factors in the start of the state’s aggressive infrastructure spending push for the next six years.

The Amsterdam-based lender currently expects GDP to grow 6.5% for 2017, which would be slower than last year’s 6.9% and would match the low end of the government’s 6.5-7.5% target.

Economic managers maintained their growth forecast in their review earlier this month, with the country’s fundamentals seen “stable” and merchandise exports expected to “improve.”

However, ING Bank economists said the slower pace of spending growth will likely mean a softer GDP expansion.

Rising security concerns in Mindanao would also be a concern for economic managers, the bank said.

“Against a backdrop of military tensions in the southern Philippines we expect the fiscal policy priority to shift to supporting growth from fiscal consolidation,” ING Bank added, referring to the ongoing battle in Marawi City between government forces and extremists aligned with the Islamic State.

Military and police forces have been struggling to reclaim Lanao del Sur’s capital for over a month now, despite the enforcement of martial law over the entire Mindanao island since May 23.

University of Asia & the Pacific economist Bernardo M. Villegas had earlier said that the impact of the Marawi siege would not be “more than 1.0% of GDP,” given the small contribution of the province to overall economic production.

Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo also said last week that current tensions in Mindanao will have a “benign” effect on inflation, especially given a price freeze in the area covered by martial law.

Moody’s Investors Service last Tuesday affirmed the country’s “Baa2” rating — a notch above minimum investment grade — with a “stable” outlook, but noted that increased domestic political risks could dampen investor sentiment and impact the country’s robust growth potential. However, the debt watcher noted that these concerns have not affected economic growth so far. —