Pernia: Infrastructure program to go ahead even with planned federalism shift

The Duterte administration’s ambitious infrastructure program will go full speed ahead and not even the planned shift to federalism would be a roadblock, the country’s chief economist said Wednesday.

Asked if he sees any impact on the rollout of big-ticket infrastructure projects spanning across provinces and regions, which may be broken down into autonomous states under a federal form of government, Ernesto Pernia told reporters: “If anything at all, federalism will not be implemented in the next two to three years; maybe, towards the end of the administration. So I don’t think it will be a stumbling block.”

He added: “It will take time to implement federalism—lots of preparations are needed.”

The economic team would study the impact of federalism on the economy, said Pernia, who heads the state planning agency National Economic and Development Authority.

But for the head of the Duterte administration’s economic team, tax administration and revenue sharing under a federal form of government are expected to be “very challenging.”

“Let’s just say it will be challenging, very challenging because the tendency [will be for] different federal states to retain as much revenue as they can and give the national government as much expenses,” Finance Secretary Carlos G. Dominguez III said in response to a question during the 2018 inaugural meeting of the Management Association of the Philippines (MAP) last Tuesday regarding the administration’s plan to shift to a federal form of government.

“There’s potential for it to become a nightmare. We are watching it very closely, particularly the revenue-sharing schemes that are going to be put forward for the [proposed] federal government,” Dominguez added.

In the meantime, Finance Undersecretary Grace Karen Singson said in a statement that the passage into law of the Tax Reform for Acceleration and Inclusion (TRAIN) Act would help make the “Build, Build, Build” initiative “financially feasible.”

Under “Build, Build, Build,” the government plans to roll out 75 “game-changing” projects, with about half targeted to be finished within President Duterte’s term, alongside spending up to P9 trillion on hard and modern infrastructure until 2022 to usher in “the golden age of infrastructure.”

According to Singson, “the government can afford this massive infrastructure spending, given the ample fiscal space that the economy has right now as a result of the sound fiscal management of the past administrations.”

Singson said the TRAIN, in particular, “will ensure a steady revenue flow for the government totaling P786 billion over the medium term.”

“The TRAIN will partly fund the infrastructure program as 70 percent of the incremental revenues from this tax reform law will be earmarked for infrastructure,” Singson pointed out.

The Finance official added that “Build, Build, Build” would be supported by “prudent fiscal management” amid declining debt service payments.

“The “Build, Build, Build” strategy will be funded in a fiscally responsible and sustainable manner, with the government committed to keeping the budget deficit at 3 percent of gross domestic product so that [the] national government’s debt-to-GDP ratio target of 37.7 percent could be attained by the end of the Duterte administration,” according to Singson.

Also, “aid and investment pledges from China and Japan—the result of the President’s foreign policy rebalancing toward Asia—has this far yielded $7.3 billion in soft loans and grants from Beijing and another $1.2 billion from Tokyo, which would be spent on infrastructure, the rebuilding efforts in Marawi City and on reinforcing the country’s maritime capabilities,” the Finance official noted.

“Though ambitious, every penny is worth spending for. The ‘Build, Build, Build’ program will create 1.7 million jobs by 2022 as well as secure our country’s fast-paced growth in the medium term,” Singson said.

“With economic studies showing that every peso invested in infrastructure yields two pesos and four centavos in economic activity, we can expect this stimulus to cause a surge in our growth,” Singson added.

Last Tuesday, Pernia said the “Build, Build, Build” is expected to boost overall construction growth this year as the government targets a higher GDP growth range of 7-8 percent.

“The Build, Build, Build program will continue its momentum in providing more opportunities to our country such as investments, job creation, connectivity, and dependable delivery of public services,” according to Pernia.

Last week, Neda Undersecretary Rolando G. Tungalan said the government would break ground for 34 or almost half of the 75 flagship infrastructure projects under the build program this year.