National budget for 2024: A Budget Badly Made (Part 2)

August 25, 2023

by Sonny Africa

(Second of three parts)

Growth unfriendly

Band-aids are not necessarily a bad thing. Social spending can be wielded to improve people’s conditions – which is important in itself even if not prioritized by the administration. But it can also be used to increase overall aggregate demand and stimulate the economy – which presumably even a narrow, growth-fixated mindset would appreciate.

Slowing growth points to the need for more aggressive government spending on income support as well as on domestic agriculture and Filipino industry (especially small industrial enterprises). This creates a virtuous cycle of increased household purchasing power spent on local producers to spur the domestic economy. Simultaneously increasing domestic demand while improving the domestic supply response is the most effective and sustainable way to drive the economy forward.

This is made more urgent by looming adverse global conditions next year. The United States (US), Japan and China accounted for some three-fifths of the country’s exports (57%) and of identifiable foreign investment (60%) in 2022. The World Bank’s latest estimates for 2024 sees an economic slowdown in these major trade and investment partners – in the US (from 1.1% in 2023 to 0.8% in 2024), Japan (0.8% slowing to 0.7%), and China (5.6% slowing to 4.6%).

Infrastructure hype

The administration’s main economic strategy of ramped-up infrastructure spending is a short-sighted and ineffective response to this. The public infrastructure budget keeps growing and goes up by Php87.3 billion to a massive Php1.42 trillion in 2024. The justification of having large multiplier effects for the economy is a cover for favoring a few large domestic and foreign corporations, as well as for creating opportunities for pork barrel schemes.

Infrastructure spending is extremely biased towards transport and transport-related projects with 69% or Php977.6 billion taken up by the departments of public works and highways and of transport. In contrast, relatively negligible amounts go to irrigation (only 2.2% or Php31.2 billion for the National Irrigation Administration), health presumably including for public hospitals (1.1% or Php15.4 billion for DOH), and education presumably including for school buildings (2.9% or Php41.6 billion for DepED, and 0.2% or Php3.4 billion for SUCs).

The employment and multiplier effects are exaggerated. These infrastructure projects, especially the big-ticket rail projects, are very capital- and import-intensive. Their long-term impact is also extremely limited in the absence of bold complementary measures to modernize agriculture and build Filipino industry. If anything, it is more likely that they will reinforce the current low value-added and non-industrial structure of the economy.

Spending equivalent amounts on greatly expanding social services will create at least the same amount of employment. Health and education, for instance, are very labor-intensive. There will also be much less leakages abroad from spending on imported materials, equipment and contractors from the US, Japan, China and others. Greater social spending will also immediately give direct benefits for the poor majority. The purchasing power of millions of domestic households will be directly and indirectly increased. This effect can be magnified further with labor-intensive local and community infrastructure especially in rural and peripheral urban areas.

Altogether this means a much stronger domestic employment, multiplier and stimulus effect – again, especially if paired with meaningful support for domestic producers and service providers.

In contrast, the transport and transport-related projects will mostly benefit real estate and commercial developers and port operators who will see increasing traffic of goods through them. These beneficiaries include the country’s richest oligarchs and the government’s closest business allies. Foreign transnational corporations locating segments of their regional production lines in the country are also big winners. Some commuters will also benefit but they will be concentrated in the few geographic areas the projects reach.

Producer neglect

Vital support for producers isn’t forthcoming. The sectoral budget for agriculture and agrarian reform increases marginally, to Php197.8 billion but at just 3.4% of the budget is still much less than the already miniscule 5.2% historical average of the past 40 years. Especially against the backdrop of agricultural liberalization, this negligible amount won’t improve productivity, attain food security, or improve rural livelihoods.

Amid concerns of a rice shortage and high rice prices, allocations for the National Rice Program (NRP) increased by only a trifling 1.9% or Php573 million to Php30.9 billion, which does not even keep up with inflation. Other programs see similar declines in real terms, taking inflation into consideration, or even outright cuts. The budget for the National Corn Program (NCP) increases by just 5.1% to Php5.3 billion and for the Organic Agriculture Program (OAP) by just 2.4% to a still very negligible Php921.9 million, while the budget for the national Livestock Program (NLP) even falls by 7.6% to Php4.3 billion.

Oil prices will likely keep rising next year and increase production costs of producers. Yet the budgets for Fuel Assistance to Farmers and Fuel Assistance to Fisherfolk do not get any increases and stay at just Php510.4 million and Php489.6 million, respectively. 

Nor is there anything in the budget to indicate any effort to industrialize. Import dependence can only be sustainably reduced if Filipino industries are built. Real national industrialization policy to achieve this would cut across all spheres of policymaking with Filipino firms in key sectors given subsidies and financial backing, research and development support, and protection astride selective export promotion. These are measures that the industrialized countries have historically used and that the US, Japan, Europe and China are increasingly using today.

Instead, the proposed budget betrays the administration’s lack of vision and ambition to industrialize and develop the economy. An authentic industrial policy would guide policies and set programs across the range of economic and social services in the budget. Still, the sectoral budget for trade and industry would presumably be among the most important expressions. But then this is one of the smallest budget items where the Php107.6 billion allotted is a scant one-fifth of one percent (0.2%) of the total budget.

Environment neglect

The administration has postured as being much more concerned about the environment and climate change than its predecessor. Its already minuscule budget for environmental protection however falls for the second straight year with a further Php78 million cut to just Php21.8 billion in 2024. This brings it down to just a little of one-third of one percent (0.38%) of the total national government budget.

The government nonetheless seeks to bolster its environment credentials by playing up the large Php69.7 billion increase in reported climate change expenditures to Php520.7 billion – consisting of Php355.3 billion for adaptation and Php165.4 billion for mitigation. Much of this is a relabeling of many of the administration’s favored infrastructure projects.

However, the categorization of the biggest expense items is not straightforward about what they’re really about. Two items account for the bulk (84%) of reported climate change spending – water sufficiency (Php294.5 billion for adaptation) and sustainable energy (Php180.7 billion for mitigation).

“Water sufficiency” here is less about ensuring affordable water supplies for the population amid the challenges of climate change and mostly about flood control projects. Many of these will benefit mainly real estate and commercial interests and, indeed, it is possible that the flooding being controlled is caused by oligarch-driven real estate and commercial projects to begin with.

Similarly, “sustainable energy” may give the impression of an accelerated shift to sustainable and renewable energy. The country’s energy mix however continues to tilt in favor of fossil fuels and this climate change component is actually overwhelmingly for rail transport projects. Large foreign and domestic corporations are the disproportionate beneficiaries of these rail projects.

Fostering abuses

Meanwhile, there are other budget items that are dubious if understood in the context of the country’s deeply flawed politics. Civil society groups have already warned against the increase in “presidential pork barrel” where so-called special purpose funds increase by a massive Php219.8 billion to Php733.2 billion. These are appropriations for expenditures with as yet unspecified purposes in the GAA.

The budget for notionally audited but practically opaque confidential and intelligence funds (CIF) meanwhile keeps increasing – by Php120 million to Php10.14 billion in 2024. This includes allocations for the Office of the President (OP) that started bloating under former president Duterte and which give Pres. Ferdinand Marcos Jr a huge Php4.6 billion next year, accounting for nearly half of all CIF. Not to be outdone, there is the historically unprecedented and patently unjustifiable CIF that Vice-president (VP) Sara Duterte will get as VP (Php500 million) and concurrently education secretary (Php150 million).

The notoriously rights-violating National Task Force to End Local Communist Armed Conflict (NTF-ELCAC) gets a hefty 31% or Php2.3 billion increase to Php9.7 billion in 2024. These are the NTF-ELCAC allotments under the Department of the Interior and Local Government (Php1.1 billion) and for its purported Barangay Development Program (Php8.6 billion).

The defense sector as a whole gets a 22% or Php50.3 billion increase to Php282.8 billion. This is one of the biggest sectoral budget increases and is more than the net increase in agriculture and agrarian reform, environment, trade and industry, power, water, health and housing combined of just Php7.6 billion. The military is controversially implicated in violations of human rights and international humanitarian law especially in rural communities.

(First part here)

(Final part here)