By Ben O. de Vera | Inquirer.net
President Duterte will leave behind 40 finished flagship infrastructure projects worth P365.2 billion by the end of his term, such that his economic team wants the succeeding Marcos Jr. administration to prioritize infrastructure development, to be partly funded by another round of tax reforms, under the proposed fiscal consolidation and resource mobilization plan.
“Moving toward recovery, the fiscal deficit should be lowered to cover only infrastructure investments and not operational expenses. This will help ensure that the borrowings fund long-term and productive investments and prevent crowding out private investments, which will increase economic activity and revenues over the long term. With debt and debt payments lowered to a manageable level, this will make room for fiscal consolidation,” read a report of the Economic Development Cluster (EDC) chaired by Finance Secretary Carlos Dominguez III.
“The next administration must ensure that the debt accumulated is going to be a smaller part of our gross domestic product (GDP). To achieve that, the economy needs to grow at a rate higher than 6 percent as done by the Duterte administration. This objective has become more attainable with the important reforms in place such as the amendments on the Retail Trade Liberalization Act, the Foreign Investment Act, and the Public Service Act, as well as the infrastructure program,” the EDC said, referring to “Build, Build, Build” aimed at ushering in a golden age of infrastructure after many years of neglect.
Build, Build, Build
The Duterte administration itself borrowed a total of $12.34 billion across 37 low-interest loans from bilateral partners like China, Japan and South Korea, as well as multilateral lenders, from July 2016 to March 2022 in order to bankroll “Build, Build, Build,” including smaller-scale projects. For the so-called flagship projects, the government secured $11.18 billion across 28 concessional financing contracts.
The Duterte administration’s “Build, Build, Build” pipeline included 119 big-ticket items or infrastructure flagship projects worth a total of P4.7 trillion, of which more than half in value and number of projects will be financed by official development assistance (ODA) loans and grants.
The EDC said that among the flagship projects, 11 worth a combined P126.7 billion were already completed, while another 29 projects amounting to P238.5 billion were expected to be finished by end-2022.
The EDC noted that the Duterte administration’s comprehensive tax reform program added P575.8 billion in incremental revenues to government coffers, and helped fund the “Build, Build, Build” projects rolled out by the national budget.
“While past administrations spent about 1.6 percent of GDP, this administration was able to raise infrastructure spending to above 5 percent of GDP, double the level recorded by the previous four administrations,” the EDC said.
The fiscal consolidation plan to be turned over by the Department of Finance (DOF) to the economic team of presumptive president Ferdinand Marcos Jr. will also contain a second round of the comprehensive tax reform program.
In all, fiscal consolidation would entail higher or new taxes, reduction in nonpriority budget items, and economic growth drivers to repay the record-high public debts that accumulated amid the prolonged pandemic.
The latest Bureau of the Treasury data showed that during the first quarter, the national government paid a total of P313.7 billion in debt, down from P521.5 billion a year ago, due to a drop in amortization despite higher interest payments.
While the Philippines started the year with lower debt servicing, budget documents had shown that the national government will settle this year a record-high P1.3 trillion in obligations, of which P785.2 billion worth will be principal amortization, on top of P512.6 billion in interest.
Economists were worried that fiscal consolidation to bring down debt levels below the 60-percent threshold deemed manageable among emerging markets like the Philippines may impact on productive spending, especially infrastructure development. The debt-to-GDP ratio climbed to 63.5 percent at the end of the first quarter.
The Cabinet-level Development Budget Coordination Committee had planned to spend P1.29 billion or 5.8 percent of GDP on infrastructure this year.
During the first full year of the Marcos Jr. administration in 2023, public infrastructure disbursements had been set at a slightly smaller P1.28 trillion (5.3 percent of GDP) due to the bigger budget share of local governments under the Supreme Court’s Mandanas-Garcia ruling, plus the block grant for the Bangsamoro Autonomous Region in Muslim Mindanao.
For 2024, government infrastructure spending will hit a high of P1.35 trillion (5.1 percent of GDP), such that infra expenditures shall average 5.4 percent of GDP during the next three years, the EDC said. INQ