The Philippines: A Good Time to Expand the Infrastructure Push

IMF News, February 6, 2020

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Canonical URL: The Philippines: A Good Time to Expand the Infrastructure Push

Infrastructure improvements will be crucial as the Philippines looks to become an upper middle-income country and reduce poverty rates from 16.6 percent in 2018 to 14 percent by 2022.
Structural economic reforms, along with sound macroeconomic policies, helped the Philippine economy to grow, on average, by 6.3 percent annually over the last decade.
The Philippine economy ranks among the best performers in Asia in recent years but faces constraints from outdated and insufficient infrastructure (for example, it takes about five minutes to drive just one kilometer in Metro Manila).

Public infrastructure investment rose from an average of 3 percent of GDP during 2011–16 to over 5 percent in 2018.
Government target: raise public infrastructure investment ratio to over 6 percent by 2022.
The government’s Build Build Build program includes large projects addressing major bottlenecks, focusing on transportation, water resources, and energy.
Expected impacts when projects are completed:
- Better transportation and internet services to help farmers bring produce (such as bananas and mangos) to markets and raise rural incomes.
- Improvements in the quality of infrastructure services to cut the cost of doing business, attract more investment, and enhance productivity.
- Private investment is projected to increase over time, leading to higher economic growth.
- Investments in education and health care to benefit students and the sick and elderly.
- Upgrades in public information technology infrastructure, such as e-invoicing and digital national identification cards, to promote efficiency and transparency and help reduce corruption.

The Philippines is among the most vulnerable countries in the world to risks from climate change and natural hazards—typhoons, landslides, earthquakes, floods, droughts, and volcanic eruptions.
Typhoon Yolanda (2013) led to 6,300 deaths and, according to official estimates, some US$3 billion in damage and losses to the economy (more than one percent of GDP).
Benefits of climate-resilient investment:
- Climate-resilient infrastructure, efficient irrigation systems, and better water management will help lessen the impact of weather-related natural disasters.
- Such investments would boost agricultural production and potentially lift many people out of poverty.

A recent IMF Public Investment Management Assessment ranks the Philippines similarly to its regional peers but observes an efficiency gap of about 23 percent compared with best practices in translating public investment into infrastructure.
Measures to close the efficiency gap:
- Improve project appraisals by identifying risk reduction measures early on.
- Greater involvement of the public, for example by publishing appraisal analyses for public comment.
- More private-sector participation in executing infrastructure investments, provided financial risks to the government are well managed.
- Develop domestic capital markets to broaden funding sources for the infrastructure push.

Strengthening the public procurement process is a priority to manage costs and reduce corruption.
- Greater competition and transparency would help manage costs and reduce risks of corruption.
- Imposing stricter sanctions, such as larger financial penalties and longer exclusion from future tendering, would help deter bid rigging in procurement.
- Allowing greater foreign participation in domestic projects would increase competition and help ease domestic capacity constraints.
Lowering obstacles to foreign investment would help the infrastructure push and stimulate private investment.
- Despite recent progress, high barriers to foreign direct investment remain in the Philippines.
- Implementation of the ease-of-doing-business law would complement efforts to cut red tape and increase transparency and accountability of regulatory agencies.

The government’s recent tax reforms have led to a significant increase in revenue collection.
Remaining packages of reforms are important for further improvements in the tax system.
Together with continued efforts to strengthen the tax system, these reforms will lay a foundation for inclusive growth by supporting sustainable investment in infrastructure and human capital.

Source: International Monetary Fund