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Hitting the infrastructure halfway mark

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Hannah Viola

Thinking Beyond Politics

Time is of the essence for the rollout of infrastructure projects as President Rodrigo R. Duterte hits the halfway mark into his six-year term that ends in 2022. As soon as he assumed office in 2016, the government introduced the “Build, Build, Build” program, which aims to reduce the infrastructure gap in the country.

Under this program, the government seeks to roll out 75 flagship projects whose cost will amount to P2.18 trillion, 37 of which were already approved by the National Economic and Development Authority (NEDA) Board. Out of the approved projects, 14 were identified to be completed by 2022, while the remaining 23 will extend beyond 2022.

Coincidentally, this halfway mark likewise puts pressure on the economic and finance departments in terms of loan and grant agreements with the country’s development partners which will finance a majority of the flagship infrastructure projects.

In the event that the Philippines moves to upper middle-income class (UMIC) status at the end of the year or by 2020, the loans will become more expensive as the country will no longer qualify for lower interest rates or preferential terms such as those extended to lower-middle-income and low-income economies. According to the World Bank, the Philippines is a lower-middle-income economy, whose gross national income per capita is between $996 and $3,895, along with other 46 countries such as Indonesia, Myanmar, India, Vietnam, Cambodia, and Lao PDR.

For its part, the Japan International Cooperation Agency (JICA) has already spoken about the possibility of higher lending rates once UMIC status has been reached. For now, JICA provides concessional financing with interest rates from 0.01 to 1.4 percent depending on the kind of loans secured. Another possible consequence of such a change is our disqualification from Japan’s Special Terms for Economic Partnership. Likewise, funding from multilateral financing institutions, such as the World Bank and the Asian Development Bank (ADB), would entail more costs on our end.

Although the Philippines would be given a grace period of two years from the time 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.




DEALING WITH DELAYS
Apart from the societal expectation to live up to the promise of entering the so-called “golden age of infrastructure,” delays in infrastructure development such as the budget impasse and the election ban on public works definitely add more weight on President Duterte’s shoulders. Due to the delayed passage of the 2019 national budget, government spending was not properly utilized, resulting in lower economic growth projections. Based on the First Quarter 2019 Report on Economic and Financial Developments of the Bangko Sentral ng Pilipinas, the budget impasse resulted in underspending of about P1 billion per day, largely contributing to the decline in public construction activities from 8.6% in the 1st quarter of 2019 compared to its year-ago and quarter-ago growth rates of 22.6% and 11.8%. Further, data from the Philippine Statistics Authority shows that growth, as measured by the gross domestic product, slid to 5.6% in the first quarter of 2019 from the 6.5% recorded in the first quarter of 2018.

CATCHING UP WITH CONCRETE PLANS
While the government recognized its shortcomings and consequently came up with a “catch-up plan,” it is essential for these plans to be clear and concrete.

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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, the government must disburse P792.97 billion for infrastructure from the 2nd to 4th quarters to 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 good initiative.

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, it is 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 Asian Development Bank (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.

BUILDING A SOLID FOUNDATION FOR DEVELOPMENT
While the plan is for government to “Spend, Spend, Spend!” to expand the economy, and to “Borrow, Borrow, Borrow!” from foreign investors, much emphasis should be on the implementation of the “Build, Build, Build!” agenda, taking into consideration the possible roadblocks ahead.

First there are the inevitable construction constraints due to weather conditions which should be taken into account. Second, quality assurance of infrastructure projects should be underscored. 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.

Also — in the words of an expert from the ADB — “plugging infrastructure gaps requires fiscal reforms and increased investments that are not only the domain of the government.” Accordingly, private and public sector cooperation 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.

The last three years of the Duterte administration is a crucial point for economic development as it seeks to build a stable and solid foundation for the Philippines in the coming years. While the burden seems to be heavy on the government, rather than breaking, it must surpass and fill in the infrastructure gaps lest the very foundation of our development crumble into pieces.

 

Hannah Viola is an attorney and a fellow of the Stratbase ADR Institute.

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