FREQUENT typhoons and recent controversies involving top-level officials’ spending of public funds could derail the government’s fiscal performance in the third quarter, posing risks to the country’s economic growth target of 6.5 percent to 7.5 percent this year, the lead economist of a major bank said.
“Combined with government underspending attributable to the Disbursement Acceleration Program [DAP] controversy and the negative effects of Glenda on Southern and other parts of Luzon are likely to have a drag on the third-quarter 2014 growth as well,” Emilio Neri Jr., Bank of the Philippine Islands lead economist, said in an e-mail to The Manila Times.
The Presidential Palace put the latest estimates of Glenda’s damage on agriculture and infrastructure at P7 billion. That includes the destruction of rice, corn and high value crops and livestock in Central Luzon, Southern Tagalog, Bicol, Metro Manila and the Cordillera Autonomous Region.
Meanwhile, the Supreme Court’s recent declaration of the DAP as unconstitutional is expected to hamper development projects relying on the program for funding, which, in turn, could weigh on government spending in the months ahead.
The economist said a drag on the third-quarter performance would mean the target for real GDP growth this year could even be more difficult for the government to achieve.
New rating upgrades unlikely
“This may also keep ratings agencies such as Moody’s and Fitch from upgrading Philippine sovereign ratings immediately to two notches above speculative grade and postpone that for later,” he said.
Last year, Moody’s Investors Service granted the Philippines an investment grade rating, upgrading the country’s sovereign to Baa3 from Ba1, while Fitch Ratings recently affirmed the country’s Long-Term Foreign and Local Currency Issuer Default Ratings at ‘BBB-’ and ‘BBB,’ respectively.
BSP still optimistic
The central bank, however, points to the basis of its optimism for the economy, saying its fundamentals have grown strong enough to cushion the impact of the recent natural calamity.
“We still need to see the estimates, but if you look at the initial reports, they say that the typhoon did not significantly affect the industrial areas,” Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said over the weekend.
“Even in the case of Metro Manila, it’s back to business as usual . . . if you look at the financial markets, they indicate that confidence has remained,” he said.
The Philippine economy grew 5.7 percent in the first quarter of the year, slower than expected, following a robust 7.2 percent expansion in 2013.