Government Spending: Back to 2011?
The Finance Department reported today that government non-interest expenditures grew 7.4% in August, significantly down from 30% the previous month and double-digit growth rates since April. While we would like to see more data points before drawing a definitive conclusion, this slowdown may signal what we have been fearing may be a possible result of the pork barrel controversy (see 24 August Post, “Time to abolish PDAF”), i.e., increased caution in government spending across all projects irrespective of individual merits. This would be unfortunate considering how fiscal restraint due to governance concerns capped GDP growth to 4% back in 2011 and how fiscal stimulus since 2012 has become a key driver of economic growth.Slower expenditure growth coupled with a 20% growth in revenues contributed to a P22-billion budget surplus in August, reducing the eight-month deficit to P82.6 billion or just 57% of the programmed deficit for the first three quarters. The smaller budget deficit and thus reduced government borrowing requirement – barring policy decisions to further increase 2014 pre-funding – together with the local financial system’s high liquidity as investments funds continue to exit the BSP’s SDA will likely keep local interest rates low in the short-term. This is especially true for short rates due to the uncertainty over the timing of the Fed’s taper. At yesterday’s Treasury bill auction, the 3-month rate dropped to zero (0.001%) while the six-month and one-year papers were near-zero (0.09% and 0.19%, respectively).