PPP seen key to sustaining growth

THE NEXT president could add 1.7 percentage points to annual growth rate over the medium term, thus hastening the country’s economic takeoff, if the public-private partnership (PPP) agenda on infrastructure-building would be continued, economists from American banking giant Citigroup said.

A Feb. 18 research titled “Surveying Asean’s Infrastructure Gap” authored by Wei Zheng Kit, Jun Trinidad and Helmi Arman warned, however, that further progress in tackling corruption could not be guaranteed in a post-Aquino government. “Weak governance, should it recur post-Aquino, could discourage private sector participation in PPP projects,” the research said.

The research noted that the abolished “pork barrel” system, which funded discretionary projects of lawmakers, along with other corruption cases had weakened the government’s effort to widen the base for tax compliance and collections, undermining its ability to fund infrastructure spending.

Yet for an archipelagic country like the Philippines, Citi said the infrastructure challenges and associated budgetary and investment costs might be significant and multifaceted—ranging from transport/logistics inadequacies, to basic sanitation/electricity supply.

“With a relatively low tax-to-GDP (gross domestic product) ratio of 14 percent, PPP funding would be needed to fund big ticket infrastructure projects, if crowding out of other spending needs or fiscal deterioration is to be avoided,” the research said, noting that the outgoing Aquino administration had jump-started the PPP program with 13 projects totaling P313 billion awarded so far.

In estimating that the economic potential of the PPP agenda would augment GDP growth by 1.7 percentage points annually, Citigroup calculated potential output gain assuming that P108.6 billion in annual construction activity would arise from PPP project implementation and positively shock the system. “This can easily offset the P2.4-billion daily losses due to traffic congestion and pollution,” the research said. “Construction will be an obvious beneficiary, although manufacturing and other sectors stand to gain as well.”

Average GDP growth rate under the Aquino administration averaged 6.2 percent, improving from 4.8 percent under Gloria Macapagal-Arroyo, 2.3 percent under Joseph Estrada, 3.1 percent under Fidel Ramos and 3.4 percent under Corazon Aquino.

A potential 1.7-percentage annual boost from infrastructure spending is thus seen bringing GDP growth to an even higher trajectory, creating more jobs and lifting more people out of poverty.

PPP funding for big-ticket items has enabled the Philippine government to pursue public investment projects without causing government debt to escalate, Citigroup said, adding this strategy had reversed the declining debt-to-GDP trend.