DOF: High ROI on public infrastructure justifies borrowings
The Department of Finance’s (DOF) chief economist has urged the government to fast-track infrastructure projects which, he said, would help reverse the growth slowdown experienced in the first quarter.
In his regular economic bulletin, Finance Undersecretary Gil Beltran said investments in big-ticket projects would be justified even if they were to be funded by public borrowing.
“Public infrastructure investment has a high economic rate of return—29.9 percent on current quarter national government investment, almost five times borrowing cost using the current rate for 25-year Treasury bonds,” he said.
As such, Beltran said the best way to revive economic growth in the country, after the budget impasse in Congress resulted in a “disappointing” 5.6-percent growth in the first quarter, was to “streamline budget implementation, particularly for infrastructure projects.”
“To ensure sustained economic growth in the years ahead, raising the national government investment rate to 5.4 percent of gross domestic product (GDP) in 2019 and further to 7 percent of [GDP] in 2022 is the best strategy to take,” he explained.
According to the Finance official, public investment and private investment are highly correlated, with the former providing a strong boost to the latter.
“When government constructs an expressway or a railway, for example, in three quarters or so, private investment mushrooms around the expressway to provide goods and services to users, boosting economic performance and reducing poverty,” Beltran said.
This, in turn, expands the tax base in the area where infrastructure is located.
