Moody’s Investors Service said in a recent analysis of the Philippine economy said that growth is being hamstrung by the government’s weak use of the budget.
The government, it said is not spending as much and as fast as it should thus constricting growth. It said the Philippine gross domestic product (GDP) likely grew by only 6.3 percent this year, below government target of 6.5 percent to 7.5 percent.
In 2013, growth was 7.2 percent. Moody’s said the government failed to make efficient use of available funds. This failure in budget execution pulled down this year’s growth and will continue to do so for the following years, Moody’s said.
In its credit analysis for the country, Moody’s pointed out that Philippine growth momentum in the first quarter of 2014 was adversely affected by the destruction wrought by Typhoon Haiyan (Yolanda) and failed to make up for this in the succeeding months because of delayed reconstruction projects. Even if funds were available, government agencies failed to speedily implement infrastructure projects. There were also structural changes in the conduct of fiscal management that led to poor budget execution in 2014, Moody’s said.
The report said government consumption and public construction which includes infrastructure development—fell by 1.6 percent year-on-year over the first three quarters of the year.
Moody’s said the government’s real GDP growth target of 7 percent to 8 percent for 2015 will be difficult to achieve if budget release and use are not improved.
The economy is expected to grow by 6.5 percent next year. The main domestic risk to growth are infrastructure constraints.
Any benefits from infrastructure development will be reaped only in the medium- to long-term,” it said.
Power shortfall expected during summer next year will be a big challenge to growth, Moody’s said.
The credit rater said the main risks to Philippine economic growth are the second-round effects of a slowing Chinese economy through lower demand from the Philippines’ trading partners; the impact of lower oil prices on remittance growth; as well as the lackluster growth outlook in Japan. Philippine exports to China amounted to only 13.2 percent of total exports through the first 10 months of 2014 or about 3.0 percent of GDP, up slightly from 2.4 percent last year. Moody’s also expects lower oil prices to adversely impact growth conditions in the Middle East, which could lead to slower growth of remittance inflows from the region.
The Middle East is the second-largest source of remittances to the Philippines; at 18.9 percent of total remittances in 2013, it was second only to the 43.1 percent from the US.
However, it said recent data shows that the current recession in Japan has had only a limited effect on the Philippines’ overall growth conditions and export performance.
Recently, Moody’s said upgraded the Philippines’ government bond rating to Baa2 from Baa3 in December 2014 as it noted the ongoing debt reduction, aided by improvements in fiscal management; the continued favorable prospects for strong economic growth; and the limited vulnerabilities of the Philippines to the global risks affecting emerging markets.