Government Infrastructure News Analysis

Boost to build big, build far

Well-respected macroeconomic-analysis provider, BMI Research – a subsidiary of credit-rating agency, Fitch Ratings – has given the Philippine economy a resounding vote of confidence. Under the direction of President Rodrigo Duterte, it says, the economy is expected to grow at an average of 6% over the next five years. If BMI is right that would make the Philippines – based on present growth projections – one of the best performing economies in the world.

Here’s what the BMI release had to say: “We believe that President Duterte’s fiscal stimulus measures will be positive for economic growth as most of the increases in spending have been earmarked for infrastructure development and social services like healthcare, education and security, which will boost long-term productivity”.

You can guarantee if BMI’s analysis had shown a bearish projection – with growth tumbling to say 3% or 4%, or even just at 5% between now and 2021, and attributing that fall to Duterte’s fiscal policies – this would have been major news globally.

As it was, BMI’s rosy outlook for the Philippines received little coverage in its own right and virtually no further analysis from mainstream news sources. It was virtually ignored. And the reason for that, as we should all know by now, is that any story that threatens to show Duterte in a good light – particularly any that suggests he’s doing a good job in handling the economy – are either trivialised, downplayed or spiked.

BMI attributes the consolidated growth not just to fiscal-stimulus measures which the administration is putting in place but also to the government’s efforts to reduce wasteful spending – particularly in the area of public procurement. Over the past five months across the range of departments inventories have been taken to assess all expenditure for government buy-ins of goods and services.

This is a massive undertaking, but already many anomalies of overpricing and ghost-buying, not to mention those of staff-remuneration packages, have come to light. What this has revealed is that corruption in the public sector – despite some improvements made under the previous government of Benigno “Noynoy” Aquino – has been very much alive and well.

This ‘shrinkage’ costs the Philippine economy hundreds of billions of pesos annually. One study, by Washington-based Global Finance Integrity – a research provider specialising in evaluating the economic impact of corruption – puts the yearly average at PHP357 billion.

But Duterte is going further than just weeding out criminal elements from the state sector – fulsome though that task is. A major pledge he made at the beginning of his presidential campaign was to burn away government red tape at the same time as introducing a new work ethic among public servants. That new ethos requires – for a change – that government employees work for the people, rather than lord it over them. These two reforms, which are now taking effect will not only improve efficiencies but will also accrue ongoing cost savings.

Increased public spending, however, is the main reason for BMI’s optimism. In its words: “It is clear that fiscal stimulus measures under the Duterte administration will be more aggressive than its predecessor, and we expect spending on infrastructure and social services to pick up over the coming quarters, in line with the 2017 budget which targets a deficit of three percent of GDP”. BMI noted that the country’s deficit-to-GDP ratio widened to 2% in 2016 from 0.9% last year.

All this fits in with Duterte’s plan to usher in a “golden age of infrastructure” by boosting infrastructure spending to 7% of the economy from 5% under the previous government. And he needed to. As BMI pointed out, the economy has been suffering from a severe infrastructure deficit – an ‘underspend’ that has had the knock-on effect of cooling investor interest in non-infrastructural areas. The place is just too difficult to get around, making the transport of goods and raw materials for manufacturing, for example, a major logistical problem and hampering market competitiveness.

In terms of infrastructure provision, the World Economic Forum ranked the Philippines 95 out of 138 countries in its recent competitiveness report. A major deterrent to attracting businesses to the archipelago, this ranking makes the country’s roads, bridges, air-transport systems and ports among the worst in the world.

Fully aware of this, Duterte has made infrastructure building the main plank of his efforts to revitalise the economy and has allocated PHP8.2 trillion to this effort over the six years of his presidential term. And this figure is solely for public works projects; it doesn’t take into account projects under the public-private partnership scheme.

One thing The Volatian™ is fairly sure of is that this government will not be underspending. Duterte has warned his department heads: “Use it or lose it”. Moreover, a full spectrum of infrastructure-building activity is being undertaken; “small, medium and large-scale projects will be done in all regions – highly developed and lagging – simultaneously, not sequentially,” as Budget Secretary, Benjamin E. Diokno explains it.

Furthermore, unlike has been the case in previous administrations – and that includes the last one – there is now a close scrutiny of all project proposals. For example, in the past departments have applied for funds for projects they were unable to implement – almost as if they didn’t want to miss out on what they perceived as ‘free money’. But rather than being put to work it was either squandered on the peripheries or ended up as dead money.

Similarly, the practice of inflating project-finance requirements – allowing for a “slack” (a contrived budgetary surplus) which could be used for alternative and unauthorised projects – has also been stopped.

Heaven forbid any of us should ever have to countenance again the likes of the 2013 Pork Barrel Scam that embroiled members of both houses of Congress and snatched PHP10 billion of the country’s money in a scandal that was pure Banana Republic. Thankfully, the high-sounding Priority Development Assistance Fund – the limo for this mass theft – is now no more following a 14-0 vote in the Supreme Court that rendered it unconstitutional.

This administration’s more disciplined approach to putting infrastructure assets in place as well as its commitment to spend big and spend far is extremely good news for improving foreign direct investment; for once the transport and freight links are in, everything else can start to open up – putting the 7,000 islands within reach of the world, its businesses, its investors, its traders and its tourists.

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