Inflation pressures highlight need for productive spending
By Beatriz Marie D. Cruz, Reporter
THE GOVERNMENT must ensure that its spending is weighted towards productive investments like education, health, and infrastructure if it is to avoid the buildup of inflationary pressure, analysts said.
“Government spending must be direct — infrastructure, health, education, social services. Spending is necessary but prudence must be exercised especially in a time where poverty is persistent,” John Paolo R. Rivera, president and chief economist at Oikonomia Advisory & Research, Inc., said in a Viber message.
He said that the impact of government spending on inflation “is conditional on supply of resources being demanded by government.”
“Government spending is okay as long as these spending items have productive consequences on the economy,” he said, citing the need to avoid ‘white elephants’, unnecessary travel, waste, unliquidated spending, and other leakages.
The Congressional Policy and Budget Research Department (CPBRD) said government spending has steadily increased since 2010, indicating that inflation has been given little weight in formulating spending plans.
“The government constantly runs the risk of exacerbating inflationary pressures and, by extension, heightening the severity of economic contractions,” the CPBRD said in a report made available this month.
According to the Bureau of the Treasury, the government spent P1.52 trillion in 2010, P1.56 trillion in 2011, P1.78 trillion in 2012, P1.88 trillion in 2013, and P1.98 trillion in 2014.
It spent P2.23 trillion in 2015, P2.55 trillion in 2016, P2.82 trillion in 2017, P3.41 trillion in 2018, P3.80 trillion in 2019, P4.23 trillion in 2020, and P4.68 trillion in 2021.
In 2022, government expenditure increased by 10.35% to P5.16 trillion.
ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa called government spending this year “so far… disappointing, highlighted by the contraction recorded in Q2.”
Gross domestic product (GDP) expanded 4.3% in April to June, the weakest reading in over two years, the Philippine Statistics Authority (PSA) said in August.
“As such the underspending is one of the main reasons for the below-consensus GDP growth so there may still be very little risk of overspending resulting in a build-up of inflationary pressures,” he added.
Government spending contracted by 7.1% in April to June, according to the PSA. National Economic and Development Authority Secretary Arsenio M. Balisacan attributed this to the absence of election-related spending.
Mr. Mapa said that government expenditure can be a key source of growth when spent on projects that improve or increase productivity.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that “higher prices/inflation could fundamentally increase the government’s expenditures, widen the budget deficit, which, in turn, could lead to more government borrowings and overall debt.”
