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MANILA, Philippines—While more infrastructure projects had been rolled out under President Rodrigo Duterte’s cornerstone “Build, Build, Build” program, his administration has failed to achieve its ambitious spending target, and the next president may struggle to sustain its buildup, UK-based think tank Pantheon Macroeconomics said.
“The campaign succeeded in ramping up much-needed investment, but clearly failed to meet its lofty goals,” said Miguel Chanco, Pantheon Macroeconomics chief emerging Asia economist in a report on Friday (April 1).
“Spending has risen to about 4.5 percent of GDP as of 2021, from the roughly 3-percent level at the end of the term of the late ex-president Benigno Aquino, but it’s still miles from the 7-percent target to be reached this year,” Chanco said.
Last week, the Department of Budget and Management (DBM) reported that if the national government’s infrastructure and other capital outlays were combined with infrastructure-related fund transfers to local governments plus subsidies and equity injected into state-run corporations, total public infrastructure spending surged to a record P1.12 trillion in 2021, equivalent to 5.8 percent of GDP.
Pre-pandemic, infrastructure spending already breached the P1-trillion mark with P1.05 trillion—or 5.4 percent—of GDP disbursed in 2019, but disbursements took a backseat in 2020 as hundreds of billions of pesos in funds had been realigned to COVID-19 response.
“COVID-19 was a huge setback, but it isn’t directly to blame for the job half-done. Indeed, infrastructure spending as a percentage of GDP was starting to plateau before the pandemic hit,” Chanco said, as implementing agencies struggled to spend their bigger budgets on publicly financed projects due to capacity constraints.
For this year, the government plans to spend a bigger P1.27 trillion, equivalent to 5.9 percent of GDP, on infrastructure. The Development Budget Coordination Committee (DBCC) had programmed infrastructure spending amounting to P1.29 trillion (5.5 percent of GDP) next year, and P1.38 trillion (5.4 percent of GDP) in 2024.
Duterte’s economic managers had urged the next administration to sustain the gains of the Build, Build, Build program aimed at ushering in a “golden age of infrastructure.”
But Chanco said fiscal consolidation — narrowing the pandemic-induced hefty budget deficit and repaying the ballooning debt pile — would make it harder to sustain robust spending amid looming budget cuts, although the current economic team had suggested keeping infrastructure development as a priority.
“Fiscal consolidation probably will be job No. 1 for whoever next occupies Malacañang Palace,” Chanco said.
“The Philippines suffered one of the biggest budget blowouts in emerging Asia in 2020, with the deficit ballooning to 7.6 percent of GDP. More disconcertingly — and unlike most of its neighbors — no progress was made in closing this gap last year, in spite of the rebound in economic growth, with the deficit widening to 8.6 percent,” Chanco noted.
“Looking further ahead, the next president likely will run up against the same fundamental constraints that prevented a more rapid and sustained rise in infrastructure spending during Mr. Duterte’s term,” he said.
“First, the Tax Reform for Acceleration and Inclusion — or TRAIN — Law simply hasn’t been transformational enough, in terms of widening the tax base, improving compliance and, ultimately, raising markedly more funds,” Chanco said.
“Another — if less direct — reason why a structural increase in revenue is a prerequisite for more aggressive infrastructure spending is that the current account surplus is no longer as secure as in the past,” he said.
“The secular decline and stagnation in merchandise exports and remittances as a percentage of GDP largely is to blame, reflecting the emergence of more competitive manufacturing hubs in Asean, such as Vietnam, and the plateauing in overseas Filipino workers over the past five or so years,” he added.
Chanco said “the surge in imports of capital goods and raw materials catalyzed by Build, Build, Build essentially has made the Philippines a twin-deficit country, a status that was quite destabilizing for the peso in the early years of Duterte’s administration,” referring to the trade and current account deficits as US dollar-paid imports outpaced dollar-earning exports.
“The current account is now back in the red, after a temporary return to the black when the worst of the pandemic restrictions depressed demand severely. All told, the greater risk of peso weakness these days will act as a big market constraint on overly ambitious infrastructure developments by any future president,” he said.
The Inquirer had reported that the National Economic and Development Authority (Neda) Board—chaired by the President—gave the go-signal to a total of 111 big-ticket infrastructure projects worth P5.3 trillion from July 2016 to mid-March 2022.
But due to the prolonged pandemic that strained the government’s limited resources, the Neda Board last month ordered agencies to prioritize public investments in human capital — specifically health and education — as well as infrastructure to not only recover from the long-term scarring effect of COVID-19 but also create more “good” jobs supportive of economic rebound.