Infrastructure investments in the Philippines may “rise sharply” in the next seven years, as government spending fuels the biggest growth in Southeast Asia outside Singapore, according to Goldman Sachs.
Andrew Tilton, Goldman Sachs senior economist, said in an 18-page report that the Philippines would need $110 billion in outlay to meet rising demand. Infrastructure investments, as a percent of gross domestic product, may rise from the current 2 percent to between 4 percent and 5 percent by 2020.
“(The Philippines) has the lowest per capita income [compared with Thailand, Malaysia and Indonesia], and ranks the weakest in infrastructure quality,” Tilton said.
The report cites a World Economic Forum (WEF) ranking that shows that the Philippines has the worst quality of infrastructure among the four countries.
The WEF places the Philippines at 3.2 in a range of one to seven—seven being the best score. Malaysia gets 5.1; Thailand, 4.6; and Indonesia, 3.8.
Goldman Sachs expects the per capita GDP of the Asian countries to nearly double between 2010 and 2020, thereby increasing demand for power, roads, airports and water, among others.
Throughout the region, infrastructure needs during the period may reach $550 billion, Goldman Sachs reported in a May 30 research titled, “Asean’s half a trillion dollar infrastructure opportunity.”
“The low base, and increases in per capita income and urbanization could drive demand across the board for a projected $110 billion,” Tilton said about the Philippines, adding that the figure is higher than government estimates.
Power projects account for the biggest share of the total amount at $46 billion. Road projects account for $24 billion; railways, $23 billion; sea ports, $8 billion; water and sanitation, $6 billion; and airports, $2 billion.
Tilton’s calculation covered the period 2013-2020, which he then compared with the Philippine Development Plan for 2011-2016.
Tilton also said that if the government were to meet the required outlay, infrastructure spending could become the key driver of overall investments in the country.
“Assuming that non-infrastructure investments grow at a constant rate, our projections suggest that infrastructure can contribute as much as 20 percent of the total investment rate in the Philippines [through] 2020,” he explained.
Considering the country’s funding needs and fiscal balances, financing of infrastructure may not be a big problem since the government is the key source of funds, Tilton said.
“Additional fiscal burden will be largely manageable,” he said, pointing to Goldman Sachs projections that the government is expected to provide 90 percent of infrastructure spending during the period.
“In the Philippines, the President currently enjoys approval ratings of over 70 percent and the strong showing in the recent mid-term elections [where administration candidates swept the posts] bolsters his mandate to further implement national plans, including the national development program, where infrastructure rollout is a key focus,” Tilton said.
The economist said the current environment is particularly conducive for infrastructure investments because liquidity is abundant, the cost of funding is lower, global commodity prices have been more benign, and the government debt ratio is lower.
Among neighboring countries, Indonesia is seen to have the largest absolute demand for infrastructure, at $235 billion between 2013 and 2020.
Thailand is also seen to increase infrastructure spending as a percent of GDP, due to its more open economy and need to boost manufacturing, with requirements estimated at $105 billion.
And because Malaysia has the highest-quality infrastructure in the region, its infrastructure needs will be lower than its neighbors, at $100 billion, Goldman Sachs said.