Build Build Build carryover faces constraints – think tank

MANILA, Philippines — The new government may have a difficult time sustaining the flagship infrastructure program of the Duterte administration as exiting the pandemic will likely be the top priority of the next president.

In its latest economic monitor, international think tank Pantheon Macroeconomics said the new administration may opt to continue the Build Build Build program, but warned that the same constraints would be there.

Pantheon’s chief Emerging Asia economist Miguel Chanco said President Duterte’s Build Build Build is a “half-win” as he failed to meet the program’s targets.

Based on the list of infrastructure flagship projects, there are 119 projects worth P4.7 trillion approved by the government. However, only 18 of these will be completed once Duterte steps down from office in June.

Infrastructure spending averaged five percent of gross domestic product (GDP) over the past six years, equivalent to at least P1 trillion annually.

Prior to the current administration, infrastructure spending was estimated at a measly P100.3 billion to nearly P400 billion from 2001 to 2016 or just three percent of GDP per year. Worse, less than two percent of GDP annually was allocated for infrastructure in the past 20 to 30 years.

“The campaign succeeded in ramping up much-needed investment, but clearly failed to meet its lofty goals,” Chanco said.

“COVID-19 was a huge setback, but it isn’t directly to blame for the job being half-done. Indeed, infrastructure spending as a percentage of GDP was starting to plateau before the pandemic hit,” he said.

Chanco said an exit from the pandemic is unlikely to be enough for the next government to pick up where Duterte left off, despite many of the presidentiables vowing to continue the program.

He explained that fiscal consolidation would probably be the number one priority of the next president given ballooning deficit and record-high debts.

“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 Duterte’s term,” Chanco said.

He cited the Tax Reform for Acceleration and Inclusion (TRAIN) Law has not been transformational enough in terms of widening the tax base, improving compliance and raising more funds.

Even the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law is still in the early stages of determining how close it will be to revenue-neutrality, as originally intended.

“Another 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,” Chanco said.

“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..