Core
Business World, 24 May 2016

The Philippines’ gross domestic product (GDP) grew by 6.9% in the first quarter of 2016, a presidential election year. That’s nothing to brag about. Strong growth in a presidential election year is not surprising. In fact, the economy expanded by 8.4% and 8.9% in the first and second quarter of 2010, respectively, much stronger than the first quarter growth of 2016.

Every election year, especially in a presidential election year, the economy gets an extra boost. The four most recent economic peaks coincided with presidential and local elections: 6.7% in 2004, 6.6% in 2007, 7.6% in 2010, and 7.2% in 2013.

The growth spurt is predictably short-lived: the economy decelerates right after the election-related boom. Gross Domestic Product (GDP) growth slowed from 6.7% in 2004 to 4.8% in 2005; from 6.6% in 2007 to 4.2% in 2008; from 7.6% in 2010 to 3.7% in 2011; and from 7.2% in 2013 to 6.1% in 2014 (see Graph 1).

With the installation of a new President, a new Congress, and a new set of local officials, growth in public spending in the second half of the year is expected to be lower than in the first half.

With the harsh impact of El Niño and potentially La Niña and flat net foreign trade (exports less imports), I expect full year 2016 GDP to grow by 6.2%, significantly lower than the government’s optimistic forecast of 6.8% to 7.8% GDP growth rates. As an additional factor, my forecast takes into account the likelihood that public construction (about one-fifth of total construction) would post zero, possibly negative, growth in the second quarter of the year (see Graph 2).

Is there a way of mitigating the expected economic slowdown in the second half of 2016 and first half of 2017? There is but the Duterte administration has to hit the ground running. His economic team (Finance, Budget and Economic Planning) together with his infrastructure team (Public Works, Transportation and Communications, Energy) should meet as soon as possible to craft a feasible financial and work plan for Duterte’s six-year public infrastructure program.

Whatever is left of the 2016 P3.1-trillion budget (and it could be huge) should be reprogrammed for small- and medium-scale, ready-to-implement — hopefully agriculture-productivity enhancing — public infrastructure projects in the countryside. Low-priority projects, which have not yet been obligated, may be reprogrammed for as long as they are used within the same department and that the President approves the reprogramming.

There are lessons to be learned from the Aquino III administration’s slow start. The drop in public infrastructure spending from 2009 to 2010 and the prolonged pick up in capital spending in 2011 was clearly attributable to the enormous time devoted by the Aquino III administration in reviewing government programs and projects.

The time-consuming review and analysis was exacerbated by the inexperience of line departments in the bidding process. This was compounded, in many cases, by the poor choice of contractors. The MRT experience is one of the most glaring examples.

The Duterte administration should learn quickly from these missteps of the Aquino III administration.

President-elect Duterte and his personnel shouldn’t accept the view that the 2017 national budget is a transition budget; the 2016 budget is the transition budget. Next year’s budget is Duterte’s first. It should already reflect his immediate, medium-term, and long-term plans and aspirations for the country.

Mr. Duterte has enough time to embody his own priorities, his own political and economic agenda, in the 2017 budget. Under the Philippine Constitution, he is mandated to submit to Congress a Budget of Expenditures and Sources of Financing (BESF) for the ensuing year within 30 days after he delivers his State of the Nation Address (SONA).

His SONA is on the fourth Monday of July or July 25th this year. Hence, he has until Aug. 24th, or approximately 8 weeks from his assumption to office, to prepare the 2017 BESF.

Even now, if he wants to, he can use the entire month of June to prepare for the 2017 budget.

Indeed, if President-elect Duterte wants to hit the ground running, he should start cracking the whip.