Construction workers are seen at work in Pasay City, May 22, 2017. — REUTERS/ERIK DE CASTRO

By Luisa Maria Jacinta C. Jocson, Reporter

BETTER infrastructure planning is needed to prepare for potential “fiscal surprises,” analysts said.

The World Bank in a recent report said developing countries must improve infrastructure governance to address fiscal surprises, as rising debt levels, higher borrowing costs, and tighter financial conditions have impacted their ability to fulfill infrastructure needs.

“An elaborate research and study are needed to identify or determine what are these ‘surprises’ as our economic situations, such as our handling of inflation, differ from other countries’ situations,” Antonio A. Ligon, a law and business professor at De La Salle University, said in a Viber message.

“It’s really difficult to give how large and frequent are the fiscal surprises of infrastructure because government management and the program of handling inflation will come into play,” he added.

From 2010 to 2018, developing countries utilized only about 70% of infrastructure investment budgets, the World Bank said.

“Closing the infrastructure gap while supporting the post-pandemic recovery requires the creation of sustainable fiscal space for infrastructure. Fiscal risks must be mitigated in order to increase the value for money from existing resources and additional capital that will need to be mobilized to close the gap,” the Washington-based multilateral lender said.

Fiscal surprises may be caused by economic factors or natural disasters, according to the World Bank. These lead to risks such as cost overrun, asset impairment, cash flow problems, early termination, and renegotiation of contracts, among others.

“Not all sources of fiscal risks from infrastructure are exogenous to the government; some are the result of moral hazard. Infrastructure projects tend to be subject to significant social and political pressures that may distort governments’ decisions regarding the selection of projects and provision modalities,” it added.

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said that fiscal surprises can occur because of unexpected government expenditures due to public health emergencies such as the coronavirus disease 2019 pandemic or natural disasters.

“These fiscal surprises will most certainly subject government-funded infrastructure to fiscal and financing risk, as it can limit the government’s fiscal space to continue spending on both indicative and ongoing infrastructure projects,” Mr. Ridon said.

Mr. Ligon also said that fiscal surprises can also refer to “unpredicted spending or allocation of resources.”

To mitigate fiscal risks, Ateneo de Manila University economics professor Leonardo A. Lanzona said that the government should shift to a rules-based approach in infrastructure planning instead of one based on discretionary decision making.

“In financial matters, such as infrastructure, we need to return to rule-based decision making. This means that the state needs to establish clear and consistent rules, communicate them and ensure their compliance. Sources should be cited at the onset, and uses of funds should be based on a given set of guidelines,” he added.

The World Bank said that the government needs to fix flaws in infrastructure governance. It recommended the implementation of public investment management, fiscal and corporate governance of state-owned enterprises, a robust public-private partnership framework, and integrated fiscal risk management.

Mr. Ligon said that the government can also estimate fiscal surprises in certain scenarios. The National Economic and Development Authority should study these scenarios, he added.

Also, Mr. Ridon said the government should manage its debt load to ensure it will be “fiscally prepared to confront various crises which may require significant government spending.”

The National Government’s outstanding debt hit a record-high P13.75 trillion as of end-February.

Infrastructure projects should be managed based on how resilient they are against shocks, Mr. Ridon said.

“The first step is for the government to further prioritize projects which will not be shelved irrespective of crises in the future and determine which projects can remain pending until the government achieves a better fiscal status,” he said.

Institute for Climate and Sustainable Cities Director for Urban Development Maria Golda P. Hilario said the government should continue to invest in making public transport, water and irrigation systems, and health and education facilities more accessible and resilient.

“Despite the previous administration’s investment allocation of about 4.2-5.8% of our GDP (gross domestic product) on infrastructure, more still needs to be done,” she said in an e-mail.

The World Bank estimated that low- and middle-income countries will need to invest at least 3.5% of their GDP to meet the infrastructure needs of their electricity and transport sectors, as well as to be on track with the Sustainable Development Goals.

The government plans to spend 5.3% of GDP on infrastructure disbursements this year.

Ms. Hilario said infrastructure investments should take the climate crisis into account.

“Given that climate risks are already being felt and scientists are pointing out worsening scenarios especially for developing countries, infrastructure investments should integrate climate and disaster risk financing and insurance to protect and support the most vulnerable groups from climate change impacts. This will require robust partnership not just of the private sector and government, but of citizens, civil society, and communities at all levels,” she added.

State spending on infrastructure rose by 13.6% to P62.7 billion in February from P55.2 billion in the same month a year ago, data from the Department of Budget and Management showed.

Month on month, infrastructure spending was up by 24.7% from P50.3 billion in January.

In the January-to-February period, infrastructure and other capital outlays jumped by 36.1% to P113 billion from P83 billion a year ago, due to higher disbursements by the Departments of Public Works and Highways and Transportation.