Financing Inclusive Infrastructure

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The Duterte Administration has launched a massive infrastructure program called the “Build, Build, Build.” This program is expected to put the Philippines closer in infrastructure capacity with its Southeast Asian neighbors. Moreover, the infrastructure program is aimed also at improving connectivity and logistics efficiency of the archipelago. This program originated from the original 10-point economic agenda that the administration presented upon assumption in July 2016. One of the elements of the agenda proposes to accelerate annual infrastructure spending to 5% of GDP until 2022. The Philippine Development Plan 2017-2022 provided details to this agenda with the Build, Build, Build providing the centerpiece infrastructure projects. Build, build, build has a total of 70 flagship projects composed mainly of roads, airports and railways around the country. Nonetheless, the bulk of these projects are still in Luzon and NCR, with some projects around the urban centers of the country. In terms of financing, about 20% will be locally funded, while multilateral agencies World Bank/ADB and the Japanese Government will funded another 20% each. The rest is distributed among China, Australia, Korea and through Public and Private Partnerships (PPP). At present, some of the projects are already completed particularly those that started during the Arroyo administration. During the Aquino administration, the projects utilized PPP heavily in financing. Seven major projects are currently under construction, while the rest are in their pre-construction stages. The main challenges of these projects is a range of issues from the different stages involving feasibility study, development, procurement and implementation. With each stage requiring different levels of capacities of all stakeholders and owing to the nature of the project itself, each project is unique in regard to timeline and financing. Thus, different stage issues are hampering the timeline of the projects. These imply that the Duterte Administration needs to make some more adjustments in execution and avoid the delays that were faced by the past administration. In particular, the challenge of right of way continues to hound present projects. The President also noted the slow process under the PPP that he called for a shift in strategy by making government rely more on public funding and official development assistance (ODA). This made the recent passage of Package 1 of the tax reform law TRAIN critical. ODA projects are now increasing vis-à-vis PPP projects. The challenge nonetheless of this shift in strategy is that it requires government to carefully manage its finances in a sustainable manner. Using ODA will require government to borrow from abroad, while local financing will require higher and sustain revenue generation. The timing of this policy shift will take advantage of the investment grade ranking of the country. With a relatively good fiscal position, meaning a manageable deficit, the government can fund the projects without increasing interest rates and affect overall economic growth. It is, however, necessary for government to pass the other remaining packages of the TRAIN since package 1 will only net less than what was originally expected. At the moment, financing seems to be not the challenge, but the execution and implementation of the infrastructure projects.