INFRASTRUCTURE and capital spending by the government fell far short of expectations in June, according to data released earlier this week, raising concerns that economic growth targets for the year may also be missed. It is time for the government to address its spending gap more proactively than to simply offer reassurances that spending will increase in the coming months.
The Department of Budget and Management (DBM) said that government infrastructure and capital spending reached P43.5 billion in June, which was 39.5 percent lower than the P71.9 billion spent in June 2018.
The slower pace of spending in June pulled government infrastructure and capital spending for the first six months of the year down to P311.4 billion, 20.8 percent lower than spending in the same period last year.
Total government spending, which includes spending for salaries and operating expenses, reached P1.59 trillion in the first six months of the year, 7.3 percent lower than in January to June 2018.
The reasons for the slow pace of spending, the DBM explained, were the four-and-a-half-months-long budget impasse with Congress at the beginning of the year, and the government spending ban from March to May ahead of the May 13 midterm elections. Because of the refusal of Congress to approve the national budget for 2019 until mid-April, the government was forced to operate on last year’s reenacted budget. Under those circumstances the election spending ban was of little actual consequence since it had already started by the time the 2019 budget was approved. Nevertheless, the DBM was correct in pointing out that for nearly five months, the government was prevented from spending for any new projects or programs.
Be that as it may, what would have seemed to be the rational course of action for the government to take would have been to prepare for increased spending during the time it could not, so that the spending could be implemented immediately. The June spending data, however, suggests a slow start.
Government spending is a critical component of the nation’s gross domestic product (GDP). Not only does it have a direct impact on GDP growth, increased government spending has an indirect positive effect by encouraging related spending in the private sector. A major infrastructure project, for example, employs many workers who then spend their wages in various ways, boosting private consumption.
Under ordinary circumstances, the process of allocating, disbursing, and then actually spending funds takes several weeks, so that increased spending for capital investments and infrastructure projects may not be reflected in the data until this month or next. By then, it may be too late to recover the planned economic growth trajectory.
The government’s GDP growth target for the full year 2019 is 6 to 7 percent. With first quarter GDP growth reaching only 5.6 percent, the economy will have to grow at better than 6 percent for the next three quarters to reach the lower bound of the target range. The government and some analysts have expressed confidence that growth rebounded in the April-June quarter (the official data will be released on August 8), but June’s unimpressive spending figures are not a positive indicator.
Even so, as things now stand economic growth is just short of expectations rather than too far below, and could be gotten back on track if the government moves quickly. Without cutting corners or overlooking safeguards, every effort should get made to roll out funding for planned projects and programs as quickly as possible. As the DBM accurately noted, strong performance in the remaining months of the year will result in the economic objectives being achieved, but that has been said before; what is needed now is decisive follow-through.