Weak govt spending in Q1 raises risk to Philippine growth

[MANILA] The Philippines posted a smaller-than-targeted budget deficit in the first quarter of the year as it spent less than planned, casting a shadow over the country's growth outlook for the year.

Government officials are banking on higher expenditure this year to boost economic activity after a spending scandal in 2014 pulled back public investment and slowed growth.

The government spent 13 percent less than programmed in the first quarter, data showed on Monday, resulting in a budget deficit of 33.5 billion pesos (US$751 million). That was sharply lower than its 98.1 billion peso fiscal gap goal in the first three months of the year.

Revenue of 470.5 billion pesos also fell short of the 484.1 billion peso target. "It's a little bit disappointing since the government could have helped the economy accelerate in the first quarter," said Emilio Neri, economist at Bank of the Philippine Islands. "It will clearly be a source of drag on the expenditure side of the national accounts but this could still be improved for the balance of the year." Manila will release first quarter economic data on May 28.

Some economists are expecting a slower GDP print in the first three months compared with the 6.9 per cent annual expansion in the last three months of 2014, but enough to make the Philippines the fastest growing economy in Asia after China. "We still think we can hit the 6 percent mark or higher in Q1, at least on the basis of the supply side," Mr Neri said.

"We are retaining our full-year growth forecast of 6.5 per cent for the year even if we are seeing a slowdown in outlay of the government," he said.

The Southeast Asian economy is targeting growth of 7-8 per cent this year, after 6.1 percent in 2014.

The Philippines said in April it plans to use at least 160 billion pesos of unspent money from the 2014 budget to help boost growth this year.

President Benigno Aquino has a 2.6 trillion peso budget this year, 15 percent higher than last year.

The World Bank said in January the country can grow beyond its 6.5 percent estimate if the government can fully utilise its budget as planned and accelerate reforms.

Ratings agencies Standard & Poor's and Moody's Investors Service raised the Philippines' credit rating to two notches above investment grade last year, citing among other factors the government's improving public finances as it has been relying less on foreign debt.

REUTERS