THE flood-control mess could threaten the country’s growth given its potential to slow down government spending, according to Nomura.
In a separate development, however, President Ferdinand Marcos Jr. gave assurances on Monday that public works will still push through next year to keep the country’s economy going, despite the ongoing government crackdown on anomalous flood control projects.
‘It [crackdown] does not mean that we have given up completely on infrastructure because we cannot. We cannot. If we stop that, we will stop the economy basically,’ the chief executive said in the fifth episode of the video blog posted in his social media accounts.
In its latest brief, Nomura said the slowdown in government spending as a result of the floodworks fiasco could prompt the Bangko Sentral ng Pilipinas (BSP) to reduce policy rates to help support the country’s growth.
A reduction in policy rates could provide a much-needed boost to domestic demand, which Nomura said, is expected to encounter ‘significant downside risks’ compared to August 2025.
‘The ongoing controversy around flood-control projects will likely be assessed by BSP as potentially leading to a slowdown in government capex disbursements, therefore posing downside risks to the GDP growth outlook at a time when BSP still sees the output gap as negative,’ Nomura said.
Nonetheless, Nomura has assigned a 60-percent likelihood for a reduction in policy rates and a 40-percent chance that the Monetary Board will leave policy rates unchanged.
‘[This takes] into account BSP’s previous ‘goldilocks’ signal and the possibility that BSP could adopt a wait-and-see approach to assess the downside risks to growth, citing elevated uncertainty,’ Nomura said.
Meanwhile, Department of Economy Planning and Development (DepDev) Secretary Arsenio M. Balisacan told reporters on Monday that government’s contribution to economic growth was only 15 percent.
‘Government spending contributes only about 15 percent or so on the economy. But what is so critical, however, is the enabling environment that government influences, and influences in terms of how the private sector economy works. And so that’s what we are even more concerned about,’ Balisacan said.
‘Since the start of this administration, I’ve been pushing for reforms that improve, enhance the enabling environment, particularly our efforts to bring up digitalization, improving the framework for the PPP code,’ he added.
This means, the country’s GDP is more dependent on the private sector for growth. Department of Budget and Management Assistant Secretary Romeo Matthew T. Balanquit noted that the growth of government construction in the first semester and second quarter contracted to 4.6 percent and 8.2 percent, respectively.
Despite this, Balanquit said, private construction helped buoy the economy’s performance. Data from the Philippine Statistics Authority (PSA) said private construction posted double-digit growth of 15.2 percent in the first semester and 16.3 percent in the second quarter this year.
Balanquit also explained that the flood control controversy may not lead to a slowdown in government consumption, given the need to finance many development projects.
He noted that with the freeing up of some resources for infrastructure in connected with the reduction of the budget of the Department of Public Works and Highways (DPWH), these funds will not disappear and will just be re-aligned to other projects.
‘We are on the tight belt now. And so the worry of underspending is not really there. We still have accounts payable, meaning those projects that were already finished in the previous year, and we have to pay them,’ Balanquit said.
‘And we have, meaning we will never really lose any reasons for where to spend our money, because we have many, many things to fund in the end,’ he added.
Further, Balisacan said growth in the first semester of the year has been weak, not because of external headwinds rather than weakness of the domestic economy.
Balisacan noted that the World Bank and the International Monetary Fund as well as other major organizations have all reduced their global growth outlook.
‘If you look at the last couple of years, it is the trade deficit that is impacting on our growth, not so much the domestic performance of our sectors,’ Balisacan said.
‘Having said that, there are positive forces that we are seeing in the economy. Over the last several months, we have seen inflation coming down, and that is likely to continue,’ he added.
Public works to continue-PBBM
Meanwhile, the President made the assurance about continuing public works after he ordered the cancellation of P255 billion worth of new locally funded flood control projects of the Department of Public Works and Highways (DPWH) next year as the agency undergoes a major reorganization.
Of the said amount, he said P26 billion will be allocated to the Department of Education for the construction of new classrooms.
The reorganization is part of the ongoing initiative of the Marcos administration to weed out corrupt practices within the agency.
Marcos created the Independent Commission for Infrastructure to look into substandard and non-existent flood control projects and other public works and then recommend the filing of charges against erring contractors as well as government officials and personnel.
He said even officials and personnel, who have resigned their post in relation to the flood control project mess, will be held accountable.
The President raised the issue during his fourth State of the Nation Address in July to eliminate corrupt practices in the government since it is stifling the country’s economic growth and negatively affecting the lives of Filipinos.
‘There is a great deal of damage that has been caused-not only financial damage or economic damage-but damage to-actual damage to people’s lives,’ Marcos said.
‘The economy will never grow properly. People are not going to get helped. The schools will not get better. The hospitals will not get better. We will not get anywhere,’ he added.