PH should watch out for fallout from US forced budget cuts
MANILA, Philippines - Forced cuts imposed on the US federal budget last weekend under a “sequester” scheme aimed at slashing the nation’s huge fiscal deficit will have minimal effects on the Philippines—for now.
For some Filipinos now in the United States, the impact may even be favorable. As a result of the reduced funding for immigration enforcement, the US government is releasing jailed illegal immigrants—most likely including Filipino TNTs—to save on the costs of maintaining detention facilities.
Still, the forced austerity move, expected to lop off $85 billion from US federal spendings this year, bodes ill for the American economy that is currently struggling to sustain an estimated 2 percent annual growth. Analysts are projecting that the sequester could trim this year’s economic growth by about 0.5 to 0.7 of a percentage point.
Given that the US is still the Philippines’ biggest source of imports and the second-biggest market for its exports, any slowdown in the economy of that major trading partner will most likely impact on local industries’ performance, especially since most of the big economies in the West are now already under stress for various reasons.
For instance, consumption may be dampened by the projected job losses, pay cuts and the reduced work hours (government agencies are mandating forced vacation among employees) caused by the reduced federal spending. Recent news reports also indicated the absence of shoppers in large retail establishments.
President Barack Obama, lamenting the budget cuts, said last week: “Not everyone will feel the pain of these cuts right away. The pain, though, will be real.”
Of the reduced US budget expenditure accounts, the biggest impact for the Philippines will likely be in official development assistance. An across-the-board cut of 5 percent, a rate used by US budget officials to arrive at the target reduction this year, will reduce the total amount of foreign aid from the US by the equivalent of nearly P295 million this year.
Before the March 1 cuts, the US appropriated development assistance worth $86.68 million for the Philippines. Another $31 million was allocated for US Agency for International Development (USAID) Global Health and Child Survival projects, while $13.5 million was budgetted under Foreign Military Financing for the Philippines.
Under one development assistance account for the Philippines, the State Department’s Global Health Initiative, was due to get this year $31 million before the forced cuts. Three programs fall under this initiative: a campaign to stamp out tuberculosis, which was originally alloted $10 million; family planning and reproductive health, $18 million; and material and child health, $3 million.
All these amounts are due to be reduced by around 5 percent under the sequester. Obviously the Philippine government has yet to assess the resulting financing gaps in affected programs.
One major US assistance program that may not be covered by the financing cuts is the $434-million, five-year Millennium Challenge Compact designed to reduce poverty, accelerate economic growth, and create opportunities for the Filipino people.
The program was formalized in September 2010 during President Benigno Aquino III’s visit to the US. The assistance program was for three projects: 1) the revenue administration and reform program of the Bureau of Internal Revenue and supporting the Revenue Integrity Program Service (RIPS), an investigation unit of the Department of Finance; 2) the reconstruction and rehabilitation of a total 220 kilometers of roads in Western and Eastern Samar under a Secondary National Roads Development Project of the Department of Public Works and Highways; and 3) small scale grants to support community driven projects in communities with poverty incidence below the national average as part of the Kapit-Bisig Laban sa Kahirapan-Comprehensive and Itegrated Delivery of Social Services (KALAHI-CIDSS) Project of the Department of Social Welfare and Development.
When the Millennium Challenge Compact-Philippines was approved in 2010, the US Congress authorized the entire amount good for five years and disbursed it to Millennium Challenge Corporation, a federal government corporation.
In the Philippines, the Millennium Challenge Account—Philippines (MCA-Philippines) was incorporated with the Securities and Exchange Commission as a subsidiary of the Development Bank of the Philippines Management Corporation.
One official involved in the formalization of the Millennium Challenge Compact says that funding for the program will only be affected if the Philippines fails to complete the three projects within the specified five years, or by 2015.
Stock markets in Asia, including the Philippines, may continue to catch “hot money” over the next few days. How the sequester will drive future direction of these capital flows will become more obvious very soon.
The sequester has the potential to threaten the world economy, given that European nations are already in dire straits. For the Philippines, that may mean new pressures to look inward for new sources of growth.