Think tank outlines ‘barriers’ to PHL’S infra devt program

ASIDE from the impact of the coronavirus 2019 (Covid-19) pandemic, the government’s low absorptive capacity will keep the Philippines from meeting its infrastructure and gross domestic product (GDP) growth targets in the medium term, according to an international think tank.

In a Research Brief, Oxford Economics’ Thatchinamoorthy Krshnan and Sung-eun Jung, said the implementation rate of the country’s infrastructure projects is only about 30 percent due to low absorptive capacity.

This will limit infrastructure’s impact on GDP growth to only 1.4 percentage points (ppts) in 2020; 1.8 ppts in 2021; and 1.9 ppts in 2022, significantly lower than government targets. On average, infrastructure’s contribution to GDP will only be 1.5 ppts in the 2017 to 2022 period.

“While these are notable contributions and should keep Philippines and Indonesia among the fastestgrowing emerging economies over the medium term, they fall short of both governments’ ambitious targets,” the economists said.

“We calculate that the implementation rate would need to rise to at least 50 percent for Philippines and the funding realization rate to double for Indonesia before infrastructure spending provides the necessary boost to reach the 7 percent growth target in both countries, given that weak private investment trends continue to curtail the contribution of overall investment to growth,” they added.

Krshnan and Jung said they came up with their estimates by comparing the budgeted capital outlay to the actual amount spent based on Commission on Audit reports.

They found out that spending made by the Department of Public Works and Highways (DPWH) and Department of Transportation (DOTR) have significantly increased by 34.9 percent and 6.1 percent between 2016 and 2018.

However, the economists said, there was a sharp increase in the amount of budgets given to both agencies keeping their average implementation rates “stagnant” at 34.2 percent for DPWH and 12.5 percent in DOTR.

The weighted average of both implementation rates, allowed the two economists to estimate the overall rate at 30 percent.

“Despite Philippines’s efforts to continue key infrastructure projects, other spending to deal with coronavirus’ health and economic impact is likely to take priority,” the economists said.

“Nonetheless, we expect public capex [capital expenditures] to pick up as normalcy is gradually restored. We estimate that based on investment multipliers of 0.85 for Philippines, infrastructure spending contributed 1.2 ppts to Philippines’s GDP growth,” they added.

In his first briefing to the media, newly appointed Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said the government’s “Build, Build, Build” (BBB) program was part of the President’s marching orders to him when he was appointed.

Under his watch, Chua said the National Economic and Development Authority (Neda) intends to evaluate the BBB program to determine which projects will have the most impact on the economy. These will be prioritized and will be used to jump-start the country’s economic recovery.

Prioritizing BBB projects means ensuring that projects to be implemented will yield the most jobs and the highest multiplier effects that will be crucial in the country’s recovery.

This will allow the country to continue its efforts in increasing GDP per capita from only 2 percent of GDP 10 years ago to around 5 percent of GDP as of 2018.

“We will have to determine which…projects have the maximum impact. And the build, build projects, when we are allowed to continue, when it is safe to go out and work, we will have to use that as one of the main drivers of our economy because that is where jobs are created, that is where the multiplier effects are higher so that would be an important part of our recovery,” Chua said.