The Duterte administration’s push to spend more on infrastructure and education will be good for the economy in the long run, Business Monitor International, a unit of Fitch Group, said in a report Monday.
The government proposed a P3.77-trillion budget for 2018, a 12.4-percent increase over this year, to fund infrastructure projects and subsidize tertiary education.
“Although the projected targets seem overly-ambitious, we believe that the government’s focus on infrastructure and education spending will be supportive of growth over the short and long term,” BMI said.
President Rodrigo Duterte certified as urgent the proposed P3.77-trillion national government budget for 2018 to encourage Congress to expedite its enactment.
The budget, if passed, would be 12.4 percent larger than the 2017 budget of P3.35 trillion and would translate into a budget deficit of 3 percent of gross domestic product. The budget would also account for 21.6 percent of 2018 GDP, according to government estimates.
“Although we regard the fiscal plan as overly ambitious, with the government likely to miss both its revenue and expenditure targets, we expect the government’s focus on improving infrastructure and education to be supportive of growth over the short and long term,” BMI said.
BMI predicted that the Philippines’ fiscal deficit as a share of GDP would widen to 2.9 percent in 2018, from a projected 2.7 percent in 2017, with revenue and expenditure likely to reach 15.5 percent and 18.4 percent of GDP, respectively.
The government’s infrastructure program, called “Build, Build, Build,” will receive P1.097 trillion or almost a third of the 2018 budget.
Education will receive P691.1 billion, mostly to fund the construction of additional 47,000 classrooms, rehabilitation of 18,000 classrooms, purchase of 84,781 chairs, and creation of 81,100 teaching positions.
The Public Works Department will get P643.3 billion, a 37.5-percent increase from its 2017 allocation of P467.7 billion while the Department of Transportation would have P73.8 billion.
The “Build, Build, Build” program is a part of Duterte’s 10-point socioeconomic agenda and aims to see infrastructure spending as a share of GDP increase to 5.4 percent in 2017 and 7.4 percent by 2022, from an average of 2.9 percent during the Aquino years (2010-2016).
“Given the severity of infrastructure constraints, we believe that government efforts to boost infrastructure spending, aided by a more transparent public tendering process, will help to significantly improve the business environment and competitiveness of the economy, which will in turn support growth in the coming years,” BMI said.
BMI said the Philippines had long suffered from poor infrastructure which could be traced back to lack of public and private investment due to a poor business environment and corruption.
The Philippine economy ranked a mediocre 57 out of 138 in terms of its overall competitiveness, dragged down by the infrastructure subcomponent ranking of 95, according to the World Economic Forum Global Competitiveness Index report in for 2016/17.
“Moreover, ‘inadequate supply of infrastructure’ is also being identified by business executives as the second most problematic factor for doing business in the country,” BMI said.
The economy is expected to grow between 6.5 percent and 7.5 percent this year, anchored on faster fiscal spending, robust domestic demand and investments.