August 14, 2019
IN the wake of the release of data last week that showed the Philippines’ economy expanded by “only” 5.5 percent year-on-year in the second quarter, many government officials and analysts have ventured to offer reassurances that the 6-to 7-percent gross domestic product (GDP) growth target for 2019 is still achievable. We think this continued concentration on an arbitrary number may be unnecessary and counterproductive.
GDP growth in the second quarter was the slowest rate of expansion in more than four years, and significantly lower than the 6.2-percent growth registered in the same quarter of 2018. Following a similarly unimpressive growth of 5.6 percent in the first three months of the year, the second quarter performance puts the lower goal of 6 percent for the whole year almost out of reach.
Assuming the data for the first half of the year is not revised at some later date, GDP growth will have to average 6.45 percent or higher in the third and fourth quarters to raise full-year growth to 6 percent. That is hypothetically possible, but seems unlikely. GDP last grew at a 6.5-percent rate in the first quarter of last year and was even higher in 2017, but that was under very different circumstances, both here in the Philippines and from a global perspective.
The factors that may make the 6-percent target impossible to reach are numerous and formidable. Internally, the government is facing having to compress 12 months of spending into just six months, thanks to the long delay in implementing the 2019 budget. In reality, there is even less time than that available, because as we learned from the Department of Finance this week, the pace of government spending is only catching up to a normal rate this month.
That means that the rate of government spending will have to be more than doubled in the remaining four months (September through December) of the year. That is probably beyond the capability of most government agencies, and is probably inadvisable even if it were possible. Rushing spending may lead to errors and unfavorable deals, since time is not afforded to properly review bids and contracts.
Even if the government does its share and more to boost the economy, the country still faces external risks to growth that it cannot control. The ongoing trade war between the US and China has implications for trade and investment here. The intensifying unrest in Hong Kong may have a serious impact as well, given the close social and economic ties between the Philippines and the city.
Setting ambitious growth targets is admirable, but encourages short-term thinking at the expense of larger objectives that may take longer, but will pay larger and more permanent benefits in the long run. Pursuing a difficult GDP target also risks having a success be perceived as a failure. Taking into account the Philippines’ rate of population growth and long-term inflation rates, any GDP growth above about 2.5 percent represents real expansion. An economic growth rate above 5 percent is in point of fact outstanding performance, and something not achieved by many countries.
Instead of fixing a growth target, allowing expectations among the public and economy watchers to form, and then waging a constant battle against the uncertainty of whether they will be met, the government should instead focus on maximizing performance: Improving the efficiency and quality of the work of government agencies, implementing well-designed laws and regulations in a timely manner, and prioritizing work that has the widest and longest-lasting positive impact on the country. If that is done, indicators such as GDP growth will speak for themselves.
Credit belongs to : www.manilatimes.net