IMF reiterates need for PHL to scale up critical infrastructure build-up by Bianca Cuaresma - March 1, 2016

The International Monetary Fund (IMF) said while the Philippines has yet to catch up with peers in the region in both quality and quantity of infrastructure, the $285-billion economy should benefit later on from on-going projects and programs meant to bridge the gaping infrastructure gap.
In a paper published on Tuesday, the IMF stressed the need for the Philippines to scale up lacklustre investments for public infrastructures long understood to have hobbled its potential to expand over a long horizon and on sustainable basis.
“This paper studied the macroeconomic implications of public investment scale up in the Philippines. After benchmarking the Philippines, relative to its neighbours in terms of level of public capital and quality of public infrastructure and public investment efficiency, it uses model simulations to assess the macroeconomic implications of raising public investment and improving public investment efficiency,” the IMF said.
The state of public infrastructures at present, the IMF said, is clearly inferior to that found in neighbouring jurisdictions.
“Persistently low public investment in the Philippines has resulted in a low public-capital stock, relative to its neighbours. Survey-based indicators also paint an unfavourable picture on the current state of public infrastructure in the Philippines,” the IMF said.
“Public-investment efficiency has room for improvement. The Philippines has made steady progress in governance and fiscal transparency. However, there is still much room to strengthen institutions to improve public-investment efficiency. Both institution-based assessment and an outcome-based estimation of public-investment efficiency suggest substantial room for improvement,” it added.
In summary, the IMF said improvements in public-investment efficiency has substantial additional benefits, because eliminating even half the existing inefficiencies would lead to higher local output measured as the GDP by 5 to 6 percentage points.
“With a low-capital stock and a fast growing young population, addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances,” the IMF said.
“Given the need to ensure debt sustainability amid the large spending needs in other priority spending areas for inclusive growth, continued efforts mobilize revenue will be critical, including by enacting measures to offset any revenue eroding policy changes and, preferably, through a comprehensive tax reform that focuses on broadening the tax base,” it added.

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“The Philippines continues to be one of the strongest and fastest- growing economies in Southeast Asia. With an impressive average GDP growth of 6.3% since the start of the Aquino administration in 2010, the country remains strong in its economic management and is committed to improving its investing climate in order to achieve further progress. Rating agencies such as Moody’s assigned a positive outlook of Baa3 to the country in September 2014 while Standard and Poor’s improved its rating with a stable outlook of BBB in May 2014. Furthermore, Fitch affirmed the country’s long term foreign and local currency issuer default ratings at ‘BBB-‘ and ‘BBB’, respectively, in March 2014” as stated by Mr. Roberto G. Manabat the Chairman and CEO of R.G. Manabat and Co., expresses optimism for the country’s attractiveness towards potential investors. However, the testament of Mr. Manabat seems to be lacking as against the claim of IMF.
According to the International Monetary Fund economist Takuji Komatsuzaki, in a working paper entitled “Improving Public Infrastructure in the Philippines” the country is clearly inferior and has yet to catch up with peers found in the neighbouring jurisdictions in terms of level of public capital and quality of public infrastructure and public investment efficiency. The working paper is a study about the macroeconomic implications of public investment scale up in the Philippines and also involved the use of model simulations to assess the macroeconomic implications of raising public investment and improving public investment efficiency.
Upgrading public investment particularly in infrastructure is a major structural challenge in the Philippines, and due to low public investment, it has resulted to low public capital stock relative to its neighbours. The Philippines’ public investment had consistently been the lowest among Association of Southeast Asian Nations (ASEAN) countries in the recent past, averaging 2.5% of GDP in 2000 to 2014 and as a result, the public capital stock is also one of the lowest among ASEAN countries, at around 35% of GDP in 2013 compared to the ASEAN average of 72% of GDP.
“With a low capital stock and a fast growing young population, addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances, furthermore, raising investment, particularly in infrastructure, would allow the country to reap the dividends of its young and growing population.” Komatsuzaki said.
Although the Philippines has made steady progress in governance and fiscal transparency, public investment efficiency has room for improvement, Komatsuzaki said. His working paper showed that increasing public investment spending can generate sustained output growth, improving public investment efficiency can bring about substantial additional benefits and addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances.
The economic activity depends on infrastructure of multiple kinds. A research conducted based on 400 global case studies, suggests that governments could boost infrastructure productivity by $1 trillion a year in three ways: Improving project selection, Streamlining delivery, and making the most of existing investments. Improving project selection involves calculating the socioeconomic benefits of a project in order to come up with an economic decision as opposed to a political one that is manifested by horse trading. In addition, the government must increase its focus on infrastructure while also saving money. Convoluted permit and land- acquisition processes are major causes for cost overruns, and by accelerating these processes, governments can cut costs. Lastly, to make the most out of existing investments by squeezing more capacity from it through pricing mechanisms and improved maintenance that must be conducted as scheduled in order to avoid dilapidation and breakdowns.
Through the adoption of such measures, output growth and the improvement of public investment efficiency through the further development of public infrastructure will not only increase our GDP but will also enable the economic condition of the country to attract more investors whose expectations will be fulfilled as other foreign jurisdictions do.