The government may fall short of its promised spending increase on infrastructure due to fiscal bottlenecks that hobble the implementation of major projects.
Moody’s Investor Service said in a statement that the Aquino administration’s plan to boost infrastructure spending to levels at par with its peers was under threat due to inefficiencies within the bureaucracy.
“Bottlenecks in fiscal expenditure continue to weigh on growth and could threaten the government’s capacity to meet its goal of increasing infrastructure spending,” the rating firm said Monday.
In 2016, the government plans to spend P766.5 billion on new roads, bridges, airports and the like. This is roughly the equivalent of 5 percent of gross domestic product (GDP), an improvement from before 2010 when the state spent under 2 percent of GDP on infrastructure.
Despite ambitious goals to ramp up spending, the government failed in the last two years to live up to its own targets.
For instance, in 2014, infrastructure spending fell short of the 3.2 percent of GDP targeted by the state. This came during a year when expectations were high due to the need for bigger outlays for Yolanda-hit provinces.
Moody’s said the private sector could help pick up the government’s slack in the coming years. “The government’s public private partnership (PPP) program has gained some traction, following a slow start at the outset of the Aquino administration,” Moody’s said.
At the moment, the government has nearly three dozen infrastructure projects in the pipeline worth $28.5 billion in its list of PPPs. These are projects identified by the government to be funded by private companies.
The rating firm said the Aquino administration has the fiscal space—owing to declining levels of government debt and growing tax and customs revenue—to bankroll big projects.
Moody’s said it expected government debt as a share of GDP to fall for a fifth consecutive year in 2015 as fiscal deficits remained narrower than budgeted.
Both the public and private sector have also relied less on cross-border sources of financing in recent years, leading to improved external debt ratios and lowering the country’s susceptibility to volatile capital flows.
Although political noise has increased ahead of general elections next year, Moody’s said it did not expect the improvements in institutional strength to reverse. “Reform momentum has been largely sustained, leading to improved assessments of competitiveness and governance,” the firm said.
Moody’s rates the Philippines at two notches above “junk” status in recognition of the economy’s resilience and improved fiscal position. Average income levels, however, remain below the average for similarly rated economies.