Government appears to be exaggerating the impact of slower public construction spending to divert from the economy’s much more basic structural problems

The government explains that slower-than-programmed government spending is behind the slowing overall growth of the economy in the first quarter of 2015, with gross domestic product (GDP) growth slackening to 5.2% from 5.6% in the same period last year. Research group IBON however said that this explanation is incorrect and only seeks to divert from lack of structural reforms and the persistent unsound fundamentals of the economy.

According to the group, the slowdown in public spending is much less of a factor than the slowdown in household spending and in exports.

Government spending is basically composed of public construction and government final consumption expenditure (GFCE). Though public construction dropped to 25% in the first quarter of 2015 from 18% in the same period last year, it is only a small part of total gross value in construction, for instance barely 20% in 2014. Even private and public construction combined account for less than 6% of the GDP, while on the other hand, GFCE grew even faster at 4.8% growth in the first quarter of 2015 from 1.9% last year. GFCE accounts for a bigger 9% of the GDP.

More than government spending, the slowdown in household spending and in exports explain the economic slowdown. Household final consumption slowed to 5.4% in the first quarter from 6.1% last year while exports slowed to 1% from 13% growth last year. Household spending accounts for some 57% of GDP, while exports are equivalent to some 38% of GDP. These slowdowns are then much more significant factors in the overall slowdown than the drop in public construction.

IBON said that the government appears to be exaggerating the impact of slower public construction spending to divert from the economy’s much more basic structural problems. This is to avoid having to come to grips with the fundamental problems of inequitable wage policies, land monopolies, backward Filipino industry, and destructive free market policies.

It is also likely that this is part of a campaign to justify greater public-private partnerships (PPPs) in infrastructure and, indeed, to justify inviting greater foreign investment also in infrastructure, the group said.