The Department of Finance expresses confidence in the economy's ability to withstand a higher interest rate environment in the second semester.
Finance Secretary Benjamin E. Diokno said the government's catch-up spending program is expected to ensure the attainment of this year's growth target.
Diokno attributes the second-quarter economic growth slowdown to various factors, including interest rate hikes, higher inflation, lower public spending, sluggish exports, and base effects from the previous election year.
Diokno highlights the significance of the government's catch-up spending program, which includes addressing the issue of idle checks in agency offices, in providing a substantial boost to gross domestic product.
The Bangko Sentral ng Pilipinas has implemented an aggressive monetary tightening cycle since May of last year, resulting in a cumulative increase of 425 basis points in borrowing costs.
The pace of adjustment in interest rates has had a discouraging effect on private construction activities, Diokno said.
Catch-up spending may temper BSP's rate hikes -- DOF
At a glance
The Department of Finance (DOF) said the economy's resilience, combined with the government's catch-up spending, will enable it to weather a higher interest rate environment in the second semester and achieve this year's growth target.
Finance Secretary Benjamin E. Diokno said the second-quarter economic growth slowdown was due to central bank interest rate hikes, higher inflation, lower public spending, sluggish exports, and base effects from the previous election year.
"The speed at which we tightened had a lag effect, as its impact does not occur immediately but rather over a longer period of time—typically six months to one year,” Diokno told reporters during the Chat with SBED last Friday, Aug. 18.
“In my view, it resulted in a slowdown in both consumption and investment,” he added.
Starting in May 2022, the Bangko Sentral ng Pilipinas has implemented an aggressive monetary tightening strategy, leading to a total of 425 basis points increase in borrowing costs to date.
Diokno said the rate at which interest rate adjustments were made had an impact on spending decisions during the period from April to June, which was further compounded by the diminishing pent-up demand for various activities.
He added that the elevated interest rates also had a discouraging effect on private construction.
The economy recorded a modest growth rate of 4.3 percent in the second quarter, short of both the projected six percent growth rate by private analysts and the 6.4 percent gross domestic product (GDP) recorded in the first quarter of 2023.
The country’s growth was pegged at 5.3 percent in the first semester. In order to meet the full-year goal target of 6.0 percent to 7.0 percent, the country's GDP would need to grow by at least 6.6 percent in the second half.
Diokno said the government's catch-up spending program, which involves addressing the issue of approximately P124.1 billion worth of stagnant checks in agency offices, would provide a substantial uplift to growth.
Last week, Budget Secretary Amenah F. Pangandaman said the amount of outstanding issued checks as of June 2023 was astounding and should have already been converted into cash.
Pangandaman said these uncashed checks were issued by national agencies, local government units, state universities and colleges, as well as government-owned and controlled corporations.
“That’s one of the reasons for the underspending,” Diokno said, referring to the national government’s P170.5 billion spending shortfall from January to June 2023.
Government spending accounts for approximately 20 percent of the economy, according to Diokno.
He further said that if spending had been increased by P100 billion, the growth rate would have been notably higher potentially by around one percentage point.