Weslene Uy, Senior Economic Research Analyst of the Stratbase ADR Institute

During the Boao Forum held in China last week, President Duterte said that the country’s Build, Build, Build (BBB) program will provide the solid backbone for growth.

Indeed, several analysts have cited the administration’s ability to execute its infrastructure program as an important factor for achieving our growth targets. To the administration’s credit, it has exerted a concerted effort to put together an infrastructure plan and promote it aggressively.

As the BBB marks one year since its launch in April 2017, it is high time to revisit the government’s infrastructure agenda and examine how the Duterte government has fared so far.

 

Recently, the Stratbase ADR Institute hosted a round table forum to discuss the Special Study written by Dr. Alvin Ang on “Financing Inclusive Infrastructure.” Dr. Ang’s study tackles the Official Development Assistance (ODA) and Public Private Partnership (PPP) debate and explores how infrastructure can become more inclusive to benefit a wider segment of the Filipino population. Experts also discussed challenges surrounding the government’s infrastructure plans and offered solutions to remedy these issues.

Although the Philippines has recorded stellar economic growth rates in the last few years, infrastructure investments have failed to keep pace with growing demand. Infrastructure to GDP spending, for example, averaged at only 2.4% from 2010 to 2016.

Consequently, the underinvestment in the sector has prevented us from reaching our full economic potential. JICA estimates that traffic congestion in Metro Manila now costs P3.5 billion in lost opportunities every day, a 45% increase from P2.4 billion in 2012. Unsurprisingly, several global rankings have scored the Philippines poorly in infrastructure quality.

In an effort to overturn our dismal performance, the Duterte administration promised to allocate record-breaking funds into the sector to usher in the “golden age of infrastructure.”

Unlike the Aquino administration, which was bogged down with scrutinizing deals made during Arroyo’s term, the Duterte administration quickly expanded on the plans and projects of its predecessors. Also in contrast to the Aquino government, the Duterte administration has decided to tap more into overseas financing. Several conglomerates have felt sidelined with the administration’s decision to favor ODA over PPP, especially for its flagship projects.

Notwithstanding this shift, the government’s aggressive infrastructure campaign has so far yielded promising results.

In 2017, infrastructure to GDP spending reached 3.6% and exceeded its target by P19.4 billion. This trend is expected to continue this year as the government has committed to roll out infrastructure projects in “full steam.” Reforms are also underway to speed up project implementation, such as a shift to an annual cash-based system, forcing government agencies to improve budget execution. A budget reform bill is also pending in Congress to institutionalize reforms in financial management, budgeting, and accountability.

In addition to increasing spending levels, it is also equally, if not more, important to consider what type of projects we’re investing in, where these projects will be located, as well as to ensure that these projects will generate optimal socioeconomic returns.

Prof. Epictetus Patalinghug, a trustee and convenor at Stratbase ADRi, pointed out that infrastructure may have a larger impact if it is invested in rural projects. Indonesia and Malaysia, for example, have reduced their poverty rates faster because they concentrated on rural infrastructure provision. China’s township and village enterprises, which also prioritized rural areas, was instrumental in propping up the Chinese economy.

Locally, the BBB’s less popular relative, the Three-Year Rolling Infrastructure Program (TRIP), deserves equal exposure. The TRIP covers 4,895 smaller infrastructure projects that will be rolled out within the next three years. A little under a third of these projects will be implemented in the five poorest regions in the country.

Prof. Patalinghug also observed that infrastructure spending has so far been directed towards funding new projects. However, project maintenance merits equal attention. The rates of return from World Bank-assisted road maintenance projects, for example, were nearly twice those of road construction projects.

While the improved infrastructure spending is promising, there are several problems the government still needs to overcome.

For instance, there have often been huge delays between project approval and project execution. Thus, the promise of increased infrastructure spending must come hand in hand with correcting institutional weaknesses, addressing absorptive capacity constraints, poor project evaluation and project selection, as well as tackling corruption. The continuity of infrastructure plans should also be ensured, especially since the scale of the BBB projects suggests that its completion dates will most likely spill over to the next administration.

According to experts, these execution bottlenecks are more pressing than concerns on which financing mode is more superior, since the PPP and ODA have their own strengths and weaknesses. A project should instead be assessed to determine which financing scheme is most appropriate for it.

Ultimately, the main issue here is whether the government can overcome these execution challenges.

As Dr. Alvin Ang pointed out, this year will be critical in that the Duterte administration should be able to deliver a much-improved infrastructure spending and faster implementation of programs. Filipinos are of course expecting concrete developments, rather than just mere lip service.

If successful, the BBB could become the Duterte administration’s legacy program. Otherwise, Duterte’s popularity might be eroded sooner if he fails to meet expectations.