Advertisement

Infrastructure spending seen sustained in 2018

Font Size

spending infrastructure
AFP

By Melissa Luz T. Lopez
Senior Reporter

ROBUST public spending is expected to be sustained this year following strong growth in 2017, analysts said, though they warned that the government needs to ensure the “high quality” of its investments to sustain growth.

Peter Lundgreen, founding chief executive officer of Lundgreen’s Capital, said the government’s 7-8% growth goal may be “doable” for 2018, but noted that increased spending should go into high-yielding investments in order to sustain broad-based economic growth.

“If the Philippines should meet a 7-8% growth target this year, there’s a risk that it will be made by infrastructure spending that is non-yielding. If infrastructure spending is non-yielding, it’s bad trade,” Mr. Lundgreen said in a recent interview with BusinessWorld.

“That is what many governments don’t realize; they just think that it’s growth. There’s actually need to have positive yields. It’s difficult to calibrate.”

Although remaining bullish towards the Philippine economy, the Danish consulting firm warns that not all spending is “healthy.”




State infrastructure spending surged last year to P568.8 billion, up 15.4%, to surpass the P549.4 billion programmed under the 2017 budget, according to the Department of Budget and Management (DBM).

This brought overall spending up by 11% to P2.824 trillion in 2017, and led to a P350.6-billion deficit, equivalent to 2.2% of gross domestic product. However, the fiscal gap is lower than the 3% ceiling set by economic managers due to a faster-than-expected increase in revenue collection, according to Treasury data.

Still, Mr. Lundgreen said the Philippines is poised to keep growing in 2018, with exports to provide an extra boost alongside steadily increasing private consumption and business investment.

He added that additional liquidity to be released into the financial system through the cut in bank reserves introduced by the Bangko Sentral ng Pilipinas is growth-positive if the funds find its way to productive uses, even as he noted that the central bank is running monetary policy “too loose.”

The 1% cut in reserve requirement imposed on universal and commercial banks takes effect today, which is expected to unlock around P90 billion in loanable cash.

“Some were very fast to say it fits fine with the very ambitious infrastructure plans, though I would say it would extremely critical if this lending capacity ends up financing government infrastructure,” Mr. Lundgreen said.

“It would be good for the Philippine economy that hopefully this lending capacity would go towards small enterprises — that would be the best outcome for the economy.”

In a separate report, ING Bank N.V. Manila said it expects robust state spending to be sustained in 2018, enough to sustain another 6.7% economic expansion.

“We are confident that the government will succeed in escalating the pace of spending, helped by the January release of 80% of the budget,” ING Bank senior economist Jose Mario I. Cuyegkeng said in his commentary.

The government plans to spend P1.1 trillion on big-ticket infrastructure projects this year, forming part of the P8-9 trillion target until 2022. This is expected to sustain economic growth and cement the Philippines’ position as one of the fastest-growing economies in Asia.

WATCH: HOW LONG CAN THE BSP PUT OFF A RATE HIKE?

 

 

Advertisement