Philippines in fresh economic dilemma

The Philippines has already missed a chance to cushion its economy from faltering global growth this year after it failed to ramp up public spending in the first half of 2008 as promised, GN reported.

Budget data this week showed spending picked up in June, but not enough to make up for a delay in passing the 2008 budget that put big infrastructure projects on ice.

With the rainy season now under way, major work is expected to start in earnest in September - too late to be of much help to the slowing economy this year.

"It's a matter of timing," said Jose Mario Cuyegkeng, economist at ING Bank in Manila. "If there's a further delay and they spend a massive amount in the fourth quarter, the full impact will not be felt quickly. It's going to be another round of downgrades in the growth outlook."

President Gloria Macapagal Arroyo hoped to arrest a skid in growth this year by releasing 60 per cent of the government's 2008 infrastructure budget in the first quarter.

But political bickering between the opposition-led Senate and the government held up the budget bill until the second quarter.

Fading hopes for a timely stimulus made economists, canvassed in Reuters quarterly polls, gradually scale back their 2008 growth forecasts to 5.1 per cent from 6.1 per cent in December.

With official first half fiscal data now at hand, some say they may be cutting their forecasts again.

"Ideally, the government should begin to roll out expenditure more aggressively on infrastructure," said Frederic Neumann, regional economist at HSBC.

"Holding down the budget deficit with spending restraint is not an optimal solution."

To soften the impact of surging energy and food costs on the poor, the government last month earmarked some of the revenue windfall from oil sales tax for energy subsidies.

It also plans to use more of the tax intake on upgrading hospitals, rehabilitating typhoon-damaged provinces and providing livelihood projects.

But economists say such welcome relief cannot serve as a basis for higher economic growth the way improved transport and industrial facilities do.

"You cannot rely on subsidies for an extended period, you also have to take into consideration what can be done from the productive side of the economy," ING's Cuyegkeng said.

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