Quick rollout of PPPs to boost economic growth

MANILA, Philippines — The rollout of more infrastructure projects that involve the private sector is expected to prop up economic growth with the government likely to make up for its lagged spending last year, according to banking giant UBS.

UBS said the government’s plans to engage the private sector in forming public-private partnership (PPP) projects is an upside to growth this year and in the long run.

UBS Asia economist Grace Lim said big-ticket PPPs, including the recently awarded rehabilitation of the Ninoy Aquino International Airport, are an important source of growth.

“A potential upside is if some of these plans to engage the private sector in PPPs come through more quickly. In that sense, we believe that it is possible that investment could also pick up,” Lim said.

Under the flagship infrastructure program of the government, data showed that there are 74 projects with a combined cost of P4.13 trillion that are ongoing.

Specifically, there are 40 projects equivalent to P2.25 trillion that are being undertaken via PPP alone, while 11 other projects worth P279 billion will be funded through a combination of PPP and other modes.

“Most of these projects will be completed beyond 2028 so that is not something that will all come through in just one year. But there are some ongoing projects worth about P300 billion targeted for completion by the end of this year,” Lim said.

“When it comes to this kind of large-scale investment, when it starts breaking ground and when it starts adding to GDP (gross domestic product) via the investment route, it tends to be rather spread out,” she said.

Lim said the implementation of PPP projects could also spur some demand for loan growth, which is seen expanding slightly above 10 percent for 2024.

This year, the government is allocating 5.1 percent of GDP or roughly P1.365 trillion to infrastructure spending.

The newly enacted PPP Code is also seen providing the Philippines with high-quality infrastructure needed to propel economic growth. It will establish a stable and predictable environment for collaboration of both public and private sectors and address the gaps in infrastructure financing.

It will also consolidate all legal frameworks and create a unified system for investors to refer to when engaging in PPP projects.

Lim is also banking on better government spending this year following a sluggish state expenditure in 2023.

“We think that government consumption growth will accelerate modestly in 2024. Our forecast is about a seven to eight percent increase year-on-year,” Lim said.

Apart from spending, UBS maintained that consumption is another upside risk to growth as inflation, particularly food inflation, falls more rapidly.

Lim said the robust labor market and strong employment growth had helped to more than offset the drag from inflation.

“Now that inflation is likely to fall, and we see that because so far right now, the only pockets of price pressures we are seeing is in terms of rice, everything else seems to be easing quite nicely,” Lim said.

“Broadly speaking, we don’t see inflation being a structurally higher issue. It’s likely to come down slowly,” she said.

For 2024, UBS is expecting inflation to settle within the target band at three percent, significantly lower than last year’s six percent.

The bank is looking at a total of 100-basis point rate cut by the Bangko Sentral ng Pilipinas, with the first easing likely in June as soon as the US Federal Reserve does so in May, in line with the market consensus.