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Marcos admin bringing back PPP mode for project financing

Elijah Felice Rosales - The Philippine Star
Marcos admin bringing back PPP mode for project financing
This file photo shows BSP Governor Benjamin Diokno at a press conference.
Facebook / BSP

MANILA, Philippines — The Marcos administration has committed to retain infrastructure spending at five percent of the economy, as it vouched for the return of public-private partnership (PPP) as a mode of financing for big-ticket projects.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno – who is set to head the Department of Finance (DOF) starting July 1 – told The STAR that infrastructure expenditures would be maintained at above five percent of gross domestic product (GDP) in the next six years.

Diokno said the incoming administration of president-elect Ferdinand Marcos Jr. would keep public works as a priority spending despite the need for the government to narrow its disbursements to cut the budget deficit.

The Marcos administration will inherit a fiscal space tightened by a bloated budget deficit and record debt. Last year the deficit widened by 22 percent to an all-time high of P1.67 trillion from P1.37 trillion in 2020, as the jump in state expenses outgrew the rebound in revenue collections.

When measured against the GDP, the deficit rose to 8.6 percent from 7.6 percent on an annual basis. However, the economic team projects that the budget gap should trend downward to 7.6 percent in 2022, 6.1 percent in 2023, 5.1 percent in 2024 and 4.1 percent in 2025.

According to Diokno, the next administration will maximize the amendments made to the Public Service Act (PSA) to access private financing in delivering public infrastructure.

The revised PSA restricted the coverage of public utilities and, in turn, opened up industries like telecommunications to foreign ownership.

Aside from infrastructure, the incoming DOF chief vowed that investments in human capital and social protection would be heightened in line with the priorities of the Marcos administration.

“On the expenditures side, we would protect BBB programs and investment in human capital [like in] the Department of Education, reskilling programs and health protection and social protection. It will be complemented by PPP projects in response to the recently approved amendments to the Public Service Act,” Diokno said.

In an interview with The STAR, PPP Center executive director Ferdinand Pecson urged the next administration to examine the costs and benefits of the PPP contracts it will enter into. He said the government should only consider tapping private funds if partner firms are willing to undergo the rigorous process for securing a PPP.

“We should do a PPP if doing so is value for money, (and) it is important that PPP contracts are structured properly, are bid out competitively and that parties fulfill their contractual obligations,” he said.

Data provided by the PPP Center showed a decline in the number of projects undertaken by the government with the private sector in the past six years.

Based on data, President Duterte has signed just six PPPs since 2016, while the late Benigno Aquino III approved a total of 17 during his presidency.

But the value of PPPs under Duterte nearly tripled to P778.86 billion, from P206.85 billion under Aquino, due to the concession agreement for the New Manila International Airport. Without the P735.6-billion airport, Duterte’s PPPs would total only P43.26 billion.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the government may find itself in a tight spot if it depends on borrowings to cover its deficit. For one, the BSP has raised its interest rate by 50 basis points as of June to combat inflation.

“For long-term borrowings and bonds, already expensive to borrow. For short-term borrowings, such as through Treasury bills, still relatively cheaper to borrow,” Ricafort told The STAR.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, believes that the shift to PPP under Marcos stems from the absence of financing choices rather than a sincerity to increase private participation.

“It is the consequence of a lack of options due to the remarkable strains the pandemic has had on government finances, as opposed to a deliberate and intentional move toward more private participation,” Chanco told The STAR.

After reaching P1.12 trillion or 5.8 percent of GDP in 2021, infrastructure spending is seen hitting 5.5 percent of GDP in 2022, 5.4 percent in 2023 and 5.3 percent in 2025. – Louise Maureen Simeon

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