Government has room to catch up on spending in H2

MANILA, Philippines - The government will need to play catch-up on capital spending over the next two quarters but record revenues collected for the first six months of the year gives it ample space to do so, data from the Department of Finance (DOF) showed.

As of the first half, capital spending – which includes payments for infrastructure, raw materials and other inventories – accounted for 2.84 percent of economic output, an improvement from last year’s 2.56 percent, but below the 4.4 percent target for the year.

While figures showed the Aquino administration is more than halfway its target, the six-month ratio is actually lower-than-expected considering the government’s macroeconomic assumptions for the year.

The 4.4-percent target was drawn against the seven to eight percent growth goal for 2015, but gross domestic product (GDP) – or the sum of all products and services created in an economy – only expanded by 5.3 percent as of June. At that pace, on-target capital spending could have been higher as a proportion of GDP.

 “The third and fourth quarters will be very crucial. The room to grow is large,” Finance Undersecretary and chief economist Gil Beltran said.

State expenditures, which accounted for 16.91 percent in the first half, have consistently lagged behind target over the past five years of the Aquino administration. In June, disbursements accelerated by 17 percent, the fastest so far this year, but this was not enough to swing the fiscal performance on target.

As of the first semester, the Aquino administration continues to operate on a budget surplus amounting to P13.7 billion. The government has capped its deficit at P283.7 billion this year.

Nonetheless, Beltran said there is “so much room for improvement” on spending considering that revenues as a proportion of GDP reached new highs as of June.

Revenue effort – or the amount of revenues collected as a proportion of GDP – rose to 17.13 percent from 15.51 percent last year. It already beat this year’s target of 16 percent and is the “highest first semester revenue effort increment achieved since 1994,” according to a DOF bulletin.

The tax effort, meanwhile, reached 14.09 percent, higher than previous year’s 13.69 percent and is the highest since 1997 if years when new tax measures took effect is excluded, it added. The target for the year was set at 15 percent.

Broken down, the Bureau of Internal Revenue recorded a tax effort of 11.14 percent, while the Bureau of Customs posted 2.82 percent.

Gundy Cahyadi, economist at DBS Ltd. in Singapore, said it will be better to look “from the bigger perspective” when it comes to the government’s fiscal performance under the Aquino administration.

“Disbursements/implementation of projects need to be improved, no doubt about that, but I think we must also give credit to current administration, in that revenue collection growth has been robust in the past five years,” Cahyadi said in an e-mail.