Commentary: Digging through the Philippines’ promised infra plans

This year signals a pivotal mark in President Rodrigo Duterte’s ambitious “Build, Build, Build” Program as he reaches the midway point of this term. Through this agenda, the government aims to spend P2.18 trillion in 75 flagship projects, 37 of which were already approved by the National Economic and Development Authority. Out of the approved projects, 13 were identified to be completed by 2022, while the remaining 23 will extend beyond 2022.
    
With only three years left, the timely rollout and implementation of infrastructure projects will make or break Duterte’s legacy to usher in the much anticipated “golden age of infrastructure” for the Philippines. 

This midway mark likewise indicates the timely review of the loan and grant agreements, which will finance the bulk of the flagship infrastructure projects, of the country, and its development partners. 

As the Philippines pursues upper middle-income class (UMIC) status before this year comes to a close or by 2020, loans will become more expensive due to our ineligibility to qualify for lower interest rates or preferential terms such as those extended to lower-middle-income and low-income economies. 

Data from the World Bank show that the Philippines falls under lower-middle-income economy, whose GNI per capita is between $996 and $3,895, along with other 46 countries, such as Indonesia, Myanmar, India, Vietnam, Cambodia and Lao PDR. 

Japan, one of the biggest investors of infrastructure in the Southeast Asian region, through the Japan International Cooperation Agency (JICA), has already spoken about the possibility of higher lending rates for the Philippines and potential disqualification from its Special Terms for Economic Partnership once the UMIC status is reached. 

Depending on the type of loans secured, JICA provides concessional financing from 0.01 to 1.4 percent interest rate. 

Moreover, funding from multilateral financing institutions, such as the World Bank and the Asian Development Bank, would entail more costs on our end. Though the Philippines is given a grace period of two years from the time the UMIC status is achieved, the government seeks to fast-track and prioritize costlier infrastructure projects, such as the Metro Manila Subway, North-South Commuter Railway and Mindanao projects, in view of the change of terms of the Official Development Assistance loans. 

Growth on a subdued state 

Infrastructure development is seemingly on a subdued state. Attributable to the delayed passage of the 2019 national budget, government spending was not properly utilized, resulting in lower economic growth projections. 

To note, Moody’s Investors Service cut its forecast to 6% from its previous projection of 6.2%. S&P Global Ratings similarly slashed its growth projection to 6.1% from a 6.3% forecast this year. 

According to the First Quarter 2019 Report on Economic and Financial Developments Report of the Bangko Sentral ng Pilipinas, the budget impasse resulted in an underspending of about P1 billion pesos per day, largely contributing to the decline in public construction activities from 8.6 percent in the first quarter of 2019 compared to the 22.6 percent a year ago and 11.8 percent last quarter. 

Further, data from the Philippine Statistics Authority shows that growth, as measured by the gross domestic product (GDP), slid to 5.6 percent in the first quarter of 2019 from the 6.5 percent growth recorded in the first quarter of 2018. 

Concrete plans for development 

Having recognized its pitfalls, the government needs to come up with concrete plans for development to materialize.

In order to achieve the growth target of 6 to 7%, the Philippine economy will need to expand by an average of 6.1% over the next three quarters. 

Based on data from the Department of Budget and Management (DBM), the government must disburse P792.97 billion for infrastructure from the second to fourth quartersto accelerate the implementation infrastructure projects and to reach the infrastructure-spending target of P1 trillion. 

Accordingly, the Department of Public Works and Highways and the Department of Transportation made a combined spending commitment of P803.1 billion for the next three quarters of the year. 

In addition to increased government spending, the administration’s plan of sparking the interest of foreign investors in Philippine infrastructure seems to be a priority. 

This coming July, the Philippines seeks to showcase the infrastructure program to attract more investors during the fourth annual meeting of the Asian Infrastructure Investment Bank (AIIB) in the Asian Infrastructure Forum.

Notably, out of the 35 flagship projects, some will be financed by Chinese loans and grants such as the Philippine National Railways South Long-Haul and the Subic-Clark Railway. 

With the help of the Japanese government, flagship infrastructure projects such as the North-South Commuter Railway and the Metro Manila Subway Project can be completed. 

As for the government of the United States, they are interested in investing in infrastructure in the Philippines and, ultimately, in the ASEAN region in partnership with the private sector and multilateral lenders such as the ADB. 

For its part, ADB’s cumulative investment in the country is at $19.3 billion with an average of $800 million yearly investment in the last 10 years.

Crucial time to construct the right foundation 

As the “catch-up plan” entails government spending to expand the economy and to seek investment opportunities from foreign entities, both public and private, much emphasis should be on the implementation of the “Build, Build, Build!” agenda itself, taking into consideration the possible roadblocks ahead. 

While the timely and speedy implementation of the “Build, Build, Build!” projects should be prioritized, the safety and quality of our country’s infrastructure has to keep up with global standards and rising expectations of Filipinos. Quality assurance of infrastructure projects should be underscored. The government shall likewise take into account the inevitable construction constraints due to weather conditions. 

Moreover, private and public sector cooperation should be enhanced as it is essential to close the gaps. With the private sector on board, there can be more access to capital, stronger incentives for competence, and exposure to cheaper yet efficient technologies.  

As the Philippines seeks to pave the way towards economic growth through infrastructure, the last three years of the Duterte administration is a crucial time to construct the right foundation for this goal. While the burden seems to be heavy on the government, rather than breaking, it must dig in and fill in the infrastructure gaps lest the very foundation of our future crumble into pieces. 

Atty. Hannah Viola is a fellow at think tank Stratbase ADR Institute, partner of Philstar.com.