Budget delay seen to take toll on investments, consumption

The delay in the approval of the 2019 national budget may take its toll on investments and consumption, according to DBS Bank of Singapore.

DBS economist Masyita Crystallin said the delayed enactment of this year’s budget could hurt investment sentiment.

“A significant part of investment has been government spending and investment. Budget is currently still under review and if reenacted, only a proportion of personal services, maintenance and operating expense, as well as capital outlays of regular programs and ongoing projects included in 2018 budget will be allowed by law,” Crystallin said.

According to Crystallin new infrastructure projects not allocated in the 2018 budget would be affected, while the ongoing projects would be allowed for disbursement up to certain percentage of the proposed budget.

The new projects at risks include the Metro Manila subway project, Mindanao railway project, and Philippine National Railway Phase-1 project.

“Even pre-construction work for these new projects might be delayed until the budget bill is passed, hence delaying overall project disbursement. Given the new cash-based systems, undisbursed budget – including due to delayed implementation – will be returned and could not be disbursed,” she said.

Crystallin said there is additional risk of delay due to prohibition of public fund disbursement during the election period from Jan. 13 to June 12 as stipulated by the Omnibus Election Code.

“Investment might be affected, with the mildest scenario where budget along with the special provision is approved

in February. The worst-case scenario, in which new infrastructure projects are being disbursed after June 12, seemed unlikely,” she said.

Budget Secretary Benjamin Diokno earlier said economic managers have asked President Duterte to seek an exemption from the Commission on Elections (Comelec) for major infrastructure projects under the Build Build Build program.

Furthermore, the economist said budget delay could also impact consumption as this could further delay salary increases for civil servants, military and uniformed personnel roughly P122 billion as well as several social spending.

“The impact to consumption assuming budget approval in February would be minimum and might be compensated by the increase in consumption due to easing inflation,” Crystallin said.

Another potential headwind to consumption, she added, is deceleration of remittance flows.