Last week, the Department of Budget and Management (DBM) submitted the proposed P4.1-trillion budget or National Expenditure Program (NEP) for 2020 to the House of Representatives. Speaker Alan Peter Cayetano said the House would hold hearings in the hopes of meeting its self-imposed deadline of approving the 2020 budget before Congress goes on its first recess on October 5. We hope this will happen to avoid the delays of approval that resulted in the 2019 budget being delayed far longer than acceptable.
The 2020 budget is 11.8 percent higher than the P3.662-trillion budget for 2019 and represents 19.4 percent of the country’s projected gross domestic product (GDP) in 2020.
A breakdown of the spending allocations in the budget shows the spending emphasis as outlined in a statement by Acting Budget Secretary Wendel Avisado: “This budget will renew our push for real change by sustaining our investments in public infrastructure and human capital development, namely health care, education and poverty alleviation.” That remains to be seen, but it is a noble thought nonetheless.
However, some number crunching at this point may make that statement more along the lines of a little wishful thinking.
The government, of course, is presenting the budget as potentially giving a boost to economic growth next year. This is due to the fact that the proposed spending is going to be higher. Yet, the overall budget deficit based on the document submitted by the DBM shows that it will remain at 3.2 percent of the nation’s GDP. Therefore, the budget is likely to have a neutral impact on the overall growth of the GDP.
Further, while the talk is that there will be a positive impact on funding for the “Build, Build, Build” infrastructure program, that spending will actually be lower in relation to, and as a percentage of, the total GDP.
Infrastructure spending is expected to rise to 5.3 percent of GDP in 2020, which is actually significantly lower than the 5.9 percent of GDP projected in the 2019 budget. The point is that while the numbers of pesos spent may be higher, what is more important is the effect on the economy. Assuming that the GDP increases by 5.5 percent, actual spending would have to increase by more than that amount to affect the GDP’s overall growth.
With the current account deficit increasing substantially since the middle of 2018—largely the result of a rush in imports of capital goods to support the infrastructure drive—the government’s finance people may be taking a more cautious approach.
Some economic analysts are touting the 2020 budget as the driving force behind a higher growth rate in 2020 than 2019, and they may be correct. However, at the end of most of these favorable comments is the thought that the real force behind lower growth in 2019 was the delay in passing the budget rather than the budget numbers.
It would appear that that problem has been solved. Now we have to wait a year to see if the actual spending does what the government hopes it will do to propel growth.