The Aquino administration clearly missed the boat on boosting the economy this year. With nearly P300 billion in budget deficit to spare, the government did not take advantage of the leeway. The result of the underspending was evident—the economy grew just 3.2 percent in the third quarter when it could have fared much better.
The 2011 budget enacted by the Aquino administration allocated billions of funds for pump-priming activities in the hope of achieving a 5-percent to 6-percent economic growth amid the weak global environment and falling export markets. The government, instead, chose to be “cautious” and withheld spending on infrastructure projects.
The economic managers appeared to have failed to apprise President Benigno Aquino III of the severity of the global market conditions resulting from the Arab Spring, the deadly earthquake in Japan in March, and the worsening debt crisis in the Eurozone. All these unfolded in succession while the US, the world’s largest economy, struggled to create jobs and lift its gross domestic product.
The confluence of these events increased world oil prices, put Japan, the world’s third-largest economy, into deeper recession, and slowed down global expansion. Philippine exports reeled in the face of a dwindling global market, especially for electronics, and the local economy petered out.
The government, for unexplained reasons, did not bother about what was happening to the rest of the world, nor did it resort to pump-priming to counter the effects of the slowing global economy. It continued to underspend, with cement and construction companies feeling the brunt of the restrained economic activities.
Economists acknowledge that government spending is key to boosting growth. It will again be a critical factor in the coming months. Bangko Sentral Governor Amando Tetangco Jr. agreed that government spending must pick up to spur economic growth in the coming quarters.
Tetangco said while lower interest rates would increase economic activity, public expenditures were “a more effective way of generating internal growth.”
The previous administration had “front-loaded” the bulk of the deficit spending, especially in infrastructure, in the early part of the year to take advantage of the good weather conditions. There is no reason why the current administration could not do the same. The multiplier effect of pump-priming is too great to ignore.