The 2020 budget has reaffirmed the Philippines’ commitment to infrastructure development as a major economic growth driver.
The 4.1 trillion pesos (US$80.3 billion) budget, which was approved in January, allocated 682.3 billion pesos (US$13.4 billion) to infrastructure, equivalent to 16.6 per cent of total expenditure.
The funds will be distributed through two government bodies: the Department of Public Works and Highways (DPWH), and the Department of Transportation (DoTr). The DPWH will receive 581.7 billion pesos (US$11.4 billion), a 25 per cent increase on last year, while the DoTr was allocated 100.6 billion per cent (US$2 billion), a 45 per cent increase.
While infrastructure development, primarily in the form of the Build, Build, Build (BBB) programme, has been a key element of President Rodrigo Duterte’s plan to increase economic growth since he took office in 2016, the 2020 budget marks a renewal following a dip in spending in 2019.
Work will continue on major projects this year, including the 357 billion pesos (US$7 billion) Metro Manila Subway Project, the largest of the BBB programme, and the North-South Commuter Railway Project in Luzon. At the same time, a series of motorways and bridges are being built throughout Manila, while motorways are being upgraded and expanded in the Visayas and Mindanao regions to address long-standing connectivity issues.
“Of the 100 projects under the flagship infrastructure program, 72 have been approved by the National Economic and Development Authority board and 56 are expected to have been completed by the end of the Duterte administration in 2022,” Ernesto Pernía, secretary of socio-economic planning, told OBG.
The increase in infrastructure development and related activity is expected to boost GDP growth, which hit an eight-year low of 5.9 per cent in 2019, according to official statistics, missing the government’s growth target of six to 6.5 per cent.
In a positive sign for the economy, the IMF projects GDP will grow by 6.2 per cent this year, before rising to 6.4 and 6.5 per cent in 2021 and 2022, respectively.
Connectivity upgrades
In addition to the immediate economic benefits associated with the construction of major infrastructure projects, efforts to improve the transport network are set to bring a series of long-term benefits. An improved network will ease the flow of goods and people across the country, which in turn will improve logistics efficiency for trade, potentially enabling the expansion of various export industries.
Highlighting that there is room for improvement, the Philippines ranked 102nd out of 141 economies for transport infrastructure in the World Economic Forum’s “Global Competitiveness Report 2019”, coming in 125th on the road connectivity component.
However, the DPWH estimates that the 1,040km Luzon Spine Expressway Network, which includes a series of road projects, will slash travel time between Manila and San Fernando in La Union province, from almost seven hours to a little over three hours.
Other road upgrades will see travel times between La Union, in northern Luzon, and Bicol, on the island’s south, more than halved, from 19 hours and 40 minutes to eight hours and 15 minutes.
The construction of the Davao-Samal Bridge in Mindanao will similarly cut travel time between Samal Island and Davao City, from one hour and 40 minutes to just five minutes.
Increase in foreign investment
Over the long term, major infrastructure works should also have a positive impact on international investment in the Philippines. Last year pledges from foreign entities to invest in the country reached a record high of 390.1 billion (US$7.6 billion), data from the Philippine Statistics Authority showed.
The figure was more than double the 183.3 billion pesos (US$3.6 billion) of commitments made in 2018, and well above the previous record of 289.5 billion pesos (US$5.7 billion) in 2012.
The top source for foreign investment pledges came from Singapore, with 176.3 billion (US$3.4 billion), followed by China, with 88.7 billion pesos (US$1.7 billion), and South Korea, with 41.5 billion pesos (US$812.4 million). Foreign investment was also matched by an increase in pledges from domestic firms, which pledged 918.9 billion pesos (US$18 billion) last year, up 20.7 per cent on 2018.
This increase came despite uncertainty over the future incentive regime for foreign investors in special economic zones, as the government strives to push through a proposal that would remove or consolidate many of the existing perks while gradually reduce the corporate tax rate from 30 per cent – the highest among major Asian economies – to 20 per cent over a 10-year period.
This Philippines piece was produced by Oxford Business Group.