Infra underspending allows P18B in H1 fiscal surplus

By Ruben Hortelano

07/17/2008

While the government has spent heavily on subsidies which are mainly one-time cash dole-outs to the poor, spendings for infrastructure, which is needed to prime up the economy amid a global slowdown, have faltered, budget data released yesterday by the government showed.

The budget reported a deficit of P18 billion in the first half, which was lower than target, but Finance Secretary Margarito Teves said the low fiscal shortfall in the first semester was achieved mainly as a result of under-spending from government agencies primarily the Department of Public Works and Highways (DPWH) and the Department of Social Welfare.

The government had planned to pump-prime the economy in the first half to cushion it from faltering global growth and soaring commodity-led annual inflation, which hit a 14-year high of 11.4 percent in June.

“The lower than expected deficit can be attributed to the P8.3 billion excess over the first semester revenue program of P561.7 billion and P14.7 billion lower spending. The national government registered a surplus in June amounting to P769 million,” Teves said at a briefing held at the Bureau of Treasury.

First-half revenues grew 11.7 percent to P570 billion, 1.5 percent above target, while spending rose 6.7 percent to P588 billion, or 2.4 percent below the ceiling set by the government.

At the same time, President Arroyo said yesterday the government had disbursed P8 billion so far this year to support the poor from surging food and energy prices.

She repeated an earlier pledge to spend up to P75 billion this year “if necessary,” which she said would mean giving up the government’s balanced budget target this year.

“To give relief to the millions of our poor, burdened by escalating world rice prices, we have maintained (rice sold by the government) at P18.25 a kilogram. And to do that, we have spent P8 billion and counting,” she said.

Analysts said focusing on cash subsidies instead of programs with long-term effects as an infrastructure buildup will have minimal impact on the economy.

“That the actual first half deficit made up only 44 percent of the programmed P41 billion is no cause for celebration as the main boost for the deficit has been underspending,” Radhika Rao, an economist with IDEAglobal, said.

“It was not an encouraging sign as it is a gamble to aim at narrowing the deficit at a time when the economy is slowing,” Rao said.

Mrs. Arroyo announced that her government will spend a further P2 billion in targeted support to the poor, who comprise a third of the country’s population of 90 million.

A P500 million facility to provide financial services will be offered to the families of bus drivers and conductors. An equivalent amount will be spent converting lighting systems in government buildings to fluorescent from incandescent to save energy.

She said these would be funded from higher sales tax revenues arising from the high price of crude oil.

Half a billion pesos would be spent to upgrade government-run provincial hospitals and half a billion pesos would go to help the central island of Panay, following the destruction wrought by Typhoon “Frank” last month.

Teves told reporters balancing the budget by calendar 2009 would require raising revenue collections to 15.5 percent of gross domestic product (GDP).

This would mean the primary tax collection agencies would have to raise collections by “close to 20 percent per annum, and basically that will be the tax revenues because we’re not expecting too much from non-tax revenues or privatization.”

An improved world economy and a stabilization of fuel prices would also help, he added.

“There are so many things to consider there — not only the revenue side but there are many factors that would influence the fiscal operations. So we will look into that but actually in our last discussion we are looking at 2010,” Teves added.

Teves blamed the underspending on the inability of agencies to implement their programs on time.

Teves said the government planned to increase the pace of public spending in the second half while keeping revenue flows within target.

These “will ensure continued social protection for the poor while also ensuring we attain our growth goal,” he said.

This year’s growth, or the GDP, was earlier forecast to range from 5.7 percent up to 6.5 percent or significantly lower than last year’s 7.2 percent.

Political bickering held up the implementation of the budget until May, meaning that many major infrastructure projects have been put on hold while contractors wait for the rainy season to end in the fourth quarter.

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