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Infrastructure growth to take a hit from budget cuts, lower spending — Fitch unit
A prolonged weakness in infrastructure growth could become a problem for President Rodrigo Duterte, who is banking on higher infrastructure spending to generate jobs and help power the economy from a coronavirus-led slump.
Boy Santos

Infrastructure growth to take a hit from budget cuts, lower spending — Fitch unit

Ian Nicolas Cigaral (Philstar.com) - June 15, 2020 - 1:28pm

MANILA, Philippines — Infrastructure growth is expected to take a hit from deep budget cuts and fund reallocations meant to beef up the government's war chest against the coronavirus outbreak, a Fitch unit said Monday, adding that such a development would not bode well for the state's economic recovery plan.

In a report sent to the media, Fitch Solutions lowered its growth forecast on the Philippines' construction sector for this year by 0.7 percentage points to 2.9% in real terms. The downgrade was triggered by the sour growth outlook on the country's infrastructure sector, which was tempered to 3.2% year-on-year from Fitch Solution's previous forecast of 5.4%.

The Fitch unit said the downward revisions to its estimates were made "in light of lower projected infrastructure disbursements and budget cuts." On the flip side, its projection for the buildings sector remains unchanged at 2.8%.

"The latest round of budget reductions for infrastructure would also mean that more government-funded 'Build, Build, Build' projects could face delays in 2020, and construction activity could be further reduced as a consequence," Fitch Solutions said.

"Risks to our forecast remains significantly weighted to the downside, given uncertainty with regards to the duration of the COVID-19 outbreak within the Philippines and globally," it added.

Budget cuts, lower disbursement

Republic Act 11469 or the 'Bayanihan' Act gave President Rodrigo Duterte far-reaching leeway to redirect budgets of state agencies and corporations to pandemic response programs. 

As a result, money allocated to the Department of Public Works and Highways (DPWH) and the Department of Transportation (DOTr) originally meant to fund construction of roads and bridges were repurposed for coronavirus programs.

The country's economic managers have already reduced the infrastructure spending program for this year to P775.1 billion from the initial amount of P800.6 billion.

To make things worse, construction activities were paused when Luzon was placed under enhanced community quarantine (ECQ) in mid-March. As a consequence, disbursements on infrastructure and other capital outlays dropped 12.4% year-on-year to P156.1 billion in the first quarter, government data showed. 

A prolonged weakness in infrastructure growth could become a problem for Duterte, who is banking on higher infrastructure spending to generate jobs and help power the economy from a coronavirus-led slump. Construction on at least six state-backed projects have resumed since tough lockdown measures were eased, Finance Secretary Carlos Dominguez III said last week. 

The Department of Budget and Management this month said the government will hike its proposed national budget for 2021 to P4.34 trillion from P4.1 trillion previously to accomodate requests from the DPWH and DOTr for additional funding.

While budget plans for next year were already announced, Fitch Solutions said it is holding its forecast for the infrastructure sector for 2021 "given that further changes to the budget could be made over the course the year given the highly uncertain impact of COVID-19 on the economy."

"Furthermore, with the 'Build, Build, Build' program also reliant on private and foreign investments for funding, a slowdown in the global economy could result in a decrease in the amount of foreign direct investments (FDI) into the infrastructure sector," the Fitch unit also said.

"Our Country Risk team now expects FDI to fall in 2020, and 'Build, Build, Build' projects could bear the brunt if COVID-19 continues to worsen globally," it added.

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