Infrastructure development in Philippines to accelerate further – Nomura

MANILA, Philippines — Nomura of Japan sees infrastructure development in the Philippines accelerating further in the next few years as the Marcos administration aims to raise annual spending from the level prior to the pandemic.

In a report, Nomura said infrastructure implementation is on a fast track in the region.

“We see a few reasons to remain optimistic that infrastructure spending and execution will accelerate in the medium term, particularly in India, Indonesia and the Philippines,” Nomura said in the report.

According to Nomura, governments that placed a high priority on infrastructure development and became more strategic in project execution have been making significant progress.

The Japanese firm sees the gross domestic product (GDP) growth in the Philippines averaging 6.5 percent between 2024 and 2028 from 6.3 percent between 2021 and 2023.

The expansion is also faster than the average 6.4 percent from 2010 to 2019 or prior to the pandemic.

The Philippine economy accelerated to 7.6 percent last year from 5.7 percent in 2021 due to further reopening of the economy with the lifting of strict COVID quarantine and lockdown protocols.

The growth was sustained with a stronger-than-expected GDP expansion of 6.4 percent in the first quarter, slower than the 7.1 percent growth in the fourth quarter last year and eight percent in the first quarter of 2022, but faster than the market expectation of 6.1 percent.

“While comparable data on infrastructure are not consistently available, proxy indicators such as the GDP share of the construction sector are showing increases in Indonesia, India, and the Philippines,” Nomura said.

It pointed out that capital outlays have been gradually declining in Thailand, likely reflecting their less conducive political environments.

In terms of sub-sectors, Nomura said transport-related infrastructure makes up the bulk of the projects in Indonesia and the Philippines, such as toll roads, airports, seaports, and railways.

“The overarching goal of their governments is to decongest economic centers and to support poverty reduction targets,” Nomura said.

To boost execution, Nomura said these countries have rectified past problems of underspending, improved planning, simplified procurement rules, enhanced land acquisition, increased the participation of state-owned enterprises (SOEs) and strengthened project monitoring systems.

“We remain optimistic that infrastructure development in these countries will accelerate in the next few years,” it said.

Despite the recent improvement, it explained there remains substantial scope for more progress and governments are setting more ambitious targets to narrow this gap, building on earlier successes.

In the Philippines, Nomura said the government is looking to maintain annual infrastructure spending of five to six percent of GDP through 2028, up from the pre-pandemic average of 4.7 percent.

Last March, the economic team of the Marcos administration announced the planned roll out 194 flagship projects worth P9 trillion.

Of the 194 projects, 45 projects would be financed through partnerships with the private sector.

“We believe concrete progress in executing public infrastructure plans is also boosting private sector participation from both local and foreign sources, helping to ease fiscal funding constraints that have increased after the pandemic,” Nomura said

These fiscal constraints have also forced governments to increase the role of public-private partnerships and provide the needed regulatory changes, leading to higher commitments.

“In the Philippines, PPP schemes are planned to finance 32 percent of flagship projects, and the government is amending the implementing rules and regulations of the Build Operate Transfer law to improve the transparency and enhance the effectiveness.