Press Release
August 8, 2011

After DBCC briefing

Drilon: This 2012 will be the most challenging because of the downgrading over the weekend of the credit rating of the biggest economy, the US. This has never happened since 1917 and therefore we must be very careful about the assessment that our economic managers are going to make about this. The reason why I asked a very specific question is that is this going to change our budget assumptions? Because obviously the budget was crafted without this downgrading being known. Will this change our projection for our GDP growth? This is critical because of the effect on unemployment and underemployment. The DBCC has agreed that after tomorrow we will meet again probably in another two months time to make a better assessment on the impact of this downgrading by S&P. They say that from the time that developed economies like the US and China would cough, it would take us 6 months to get the cold. So here, to be precise about it, it will take a little time for us to assess what the impact will be. In the mean time, our concern about underspending with programmed deficit of P152 billion for the 2 quarters of 2011, and yet our actual deficit for the same period is only P17.5 billion. This really means that we have not been spending and the classic example is the P20 billion lump sum appropriation for DPWH where less than P500 was million spent. I am glad that the DBCC is aware of this and they are exerting extra effort in order that there can be more spending, there can be more public infrastructure spending. Public consumption in the budget contracted by 37% as compared to last year. This is really something that must be looked at carefully especially given the recession in the US.

Q: How did they explain the underspending?

It's just a question of funds not being released and the funds not being in the hands of the agencies involved to be able to disburse these. Of course, in fairness to them, particularly the DPWH, they have been instituting measures so that the funds released really would go to the projects and minimize the corruption. This takes a little while... I can appreciate that. For example, funds are released to the project without any program of work in order to determine the reasonableness of the funds released. All of these measures and reforms being undertaken on the ground have taken its toll on the capacity of the government to spend on infrastructure. I do hope that with these reforms being already in place that the next 6 months we'll see a substantial spending on the part of the government in order that we can at least cushion whatever negative impacts there are on the economy as a result of the downgrading of the credit rating of the US which is a major export market for us.

Q: DBCC given 2 months to revise targets?

No, to make a more accurate assessment of the effects. I can appreciate that they could not make a more accurate assessment now but they have agreed that in 2 months time they can brief us if there is a need to revise our budget assumptions and our projection targets for our GDP growth.

Q: Hindi ba maapektuhan yung timetable to pass the budget?

Hindi naman.

Q: On credit downgrade, the impression you got from the Executive...

That's why I asked a very specific question, 'how will this affect our budget assumptions, how will this affect our GDP growth'. My initial impression was that we have nothing to worry. When I asked them to reconfirm, they now said 'give us a little time to assess the situation'.

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