Government infrastructure projects to pump-prime economy — DOF

MANILA, Philippines — The government must expedite the implementation of infrastructure projects to stimulate economic activity, boosting private investments and driving gross domestic product (GDP) growth, according to the Department of Finance (DOF).

In his latest economic bulletin, Finance Undersecretary and chief economist Gil Beltran said fasttracking the government’s investments on infrastructure would help the economy recover in the next quarters, especially after registering a four-year low GDP growth rate of 5.6 percent in the first quarter.

“The best way to revive economic growth in the country after the budget impasse in Congress resulted in a disappointing 5.6 percent growth in the first quarter is to streamline budget implementation, particularly for infrastructure projects,” Beltran said.

“To ensure sustained economic growth in the years ahead, raising the national government investment rate to 5.4 percent of GDP in 2019 and further to seven percent of GDP in 2022 is the best strategy to take,” he said.

According to Beltran, increasing the national government’s investments has been seen to translate to higher economic activity from the private sector which, in turn, propel economic growth and help reduce poverty.

“Public investment provides a strong boost to private investment. When government constructs an expressway or a railway, for example, in three quarters or so, private investment mushrooms around the expressway to provide goods and services to users, boosting economic performance and reducing poverty. This, in turn, expands the tax base in the area where infrastructure is located,” Beltran said.

He said that for every percentage point of GDP increase in public construction, private investment rises by 1.25 percentage points of GDP after three years, and 2.03 percentage points after four to six years.

Going with this trend, the DOF’s chief economist said he expects private investment to increase in the next few quarters.

“In 2018, public construction rose by 20 percent in real terms from 12.7 percent in 2017. Thus, in the next three to six quarter, private investment is expected to expand by a cumulative 24.6 percentage points of GDP,” he said.

National government investment expanded by an average of 39.7 percent from 2016 to 2018, reaching 5.4 percent of GDP in 2018, the highest in the country’s history, according to Beltran.

Beltran said this translated to a high economic rate of return, reaching 29.9 percent or almost five times the government’s borrowing cost, using the current rate for 25-year Treasury bonds.

He said public investments recorded high returns as infrastructure projects undergo stringent project evaluation by the Investment Coordination Committee where major national projects costing P2.5 billion or more are vetted by seven agencies before implementation.

The DOF official said the procurement for the projects also undergo an open, transparent bidding process. They must be implementation ready before the Department of Budget and Management (DBM) provides an allocation for them in the national budget.