Economics 101Economics

PHL Economic Stimulus Package Not Enough?(3-min read)

We’ve heard much on rescue missions via stimulus packages and bailout plans for the US and European nations in the past 5 years or so. Now, does our beloved Philippines need the same? Are we in so much trouble that we need such package?

In the week that was, the government unveiled its stimulus plan, or a P72B ($1.7B) spending plan for the rest of the year to revive the economic growth of the country and arrest the sluggish and declining GDP for the past 2 quarters. One of the reasons cited for slow economic growth in the past months is the deliberate government underspending, as PNoy’s government purposely spends as less as possible, to lessen our budget deficit incurred in the past years / administrations.

As a side-effect though of this underspending is the slow economic growth usually measured by Gross Domestic Product or GDP. In a basic sense, this GDP is fueled both by government production /spending and private production / consumption (i.e. simply our production /spending). With the absence of government spending, GDP and our economic activity is pretty much left to rely on private consumption (our very own products, services, transactions and spending), as well as remittances from overseas.

And so, to catch up with the remainder of the year, the administration has presented a spending plan focusing on social housing and relocation, construction of roads, railway upgrades and public works, agriculture and funding for LGUs. Basically projects expected to bring high macro-economic impact and that will help the poor. Like all things in life, the stimulus package drew mixed reactions from various sectors.

1. What Stimulus? Some critics say that this should not be called a stimulus package but rather a catch up spend since the government is not really infusing fresh funds to the economy or spending on items that were not really planned for, but rather just trying to spend more during the rest of the year, to compensate the lack of spending year to date. The plan is to use the budget savings year to date and spend more than what is planned for the next 3 months. Net effect though is that we’ll still end up with the same spend levels as planned for whole 2011.

2. Welcome Move. BSP welcomed this strategy by the administration, citing that government spending will definitely help economic growth amidst all the uncertainty in the global economies. Further, with private spending expected to further go up in 4Q11 due to holidays, coupled by stable exchange rates, sufficient liquidity in the markets, plus manageable inflation outlook, economic activity is expected to be boosted up and maybe we can expect an improved GDP towards the end of the year, relative to what we have reached in terms of GDP year-to-date. 

3. Too little too late? Analysts highlighted that in spite of this move by the government, we should still be wary with the global economic issues we are facing as of the moment. The move will not necessarily shield us from the downturn, but a strong local economy and internal production and spending will nonetheless soften the impact of global downturns. Likewise, since exports is among our major industries, increased internal spending can alleviate the impact of expected lower demand for our exports. Nonetheless, with 10 weeks left for 2011, some sectors are unconvinced that this will impact our 2011 figures as much as the administration targets.

Having seen some of the mixed reactions from sectors involved, I’d say that this package is still better than nothing. Yes, I actually appreciate the frugality being practiced by the government, but there will be times that we have been too thrifty that we are no longer competitive and productive, as such we indeed need to catch up since we have the resources anyway. Likewise, whatever we call the spending plan, we should be thankful that we are doing this, not really to get the country out of deep trouble (unlike what happened to Western and European companies), but more to prevent the catastrophic downturn.


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