The Philippines has always been considered a country rich in resources with a huge potential to become a prosperous economy, yet it has been laggard in terms of growth among countries in Southeast Asia. One of the main reasons is poor infrastructure, which is recognized as essential to stimulating economic activities and attracting investments.
This is a fact known to economists and investors; that is why the previous administration was criticized for underspending on infrastructure projects, despite the much-ballyhooed launching of the Public-Private Partnership (PPP) Program as the flagship initiative to make up for the perennial public-works shortfall.
It seemed the previous administration was more focused on presenting a corruption-free image, but the means used to achieve it was to restrain spending. It took pride in earning positive ratings from international credit-rating agencies, but failed to utilize the good credit record to finance the construction of roads, bridges and other facilities.
It was as if the government could not be honest while spending taxes and other revenues at its disposal, even if it was for the benefit of the people.
Today, we see the Duterte administration maintaining a strict policy against corruption while, at the same time, pursuing a massive infrastructure program. In line with the presidential directive, the Department of Public Works and Highways, which, for many years, was perceived to be one of the most corrupt agencies, has instituted measures to reduce opportunities for corruption while improving efficiencies to achieve the goals of the infrastructure program.
Under its “Build, Build, Build” program, the Duterte administration plans to spend $20 billion a year until 2022 for new roads, expressways, rail systems and other systems to improve the movement of goods and people and stimulate economic activity throughout the country.
Among the members of the economic team, Finance Secretary Carlos G. Dominguez III is in charge of financial issues, recognizing the huge funding requirements of the flagship infrastructure program.
President Duterte himself launched initiatives that are now giving the government access to billions of dollars in grants and concessional loans. Through his independent foreign policy, the President obtained commitments from China and Japan, among other countries, to support the Build, Build, Build program.
The government is also pushing for the enactment of a tax -reform package that will generate additional revenues to support the infrastructure program.
Notwithstanding the huge financial resources involved in the program, Dominguez is vigilant about maintaining the government’s good credit standing. This is a risk that he has successfully taken, but which previous administrations were afraid to take.
The previous administration’s last rating was in April 2016, when it was rated BBB-, positive outlook affirmed by London-based Fitch Ratings.
In March 2017 Fitch again rated the Philippines “BBB-”, positive outlook affirmed. In April 2017 Standard & Poor’s gave the country a rating of “BBB”, stable outlook affirmed. In June 2017 Moody’s rated the Philippines Baa2, stable outlook affirmed.
During the economic team’s presentations in four countries this year, Dominguez said the government is following prudent and effective liability management to sustain reduction of debt as a percentage of GDP.
He said that, as a matter of policy, the government is maintaining 80- percent to 20-percent borrowing to meet its financing needs in favor of domestic borrowing. This will lessen the exchange risk as the government pursues an expansionary economic strategy.
Dominguez noted that, despite the increased spending on infrastructure and social services, the government expects inflation to hover between 2 percent and 4 percent
during the medium term.
He said the Duterte administration was limiting public-sector deficit to 3 percent of GDP. He stressed that fiscal stability is key to the sustainability of the country’s economic expansion.
He listed the factors that would keep the economy on the high-growth path and attract more long-term investments, as follows: benign interest rates, the continuing efforts to improve the business climate by cutting red tape, curtailing corrupt practices and limiting the negative list for foreign investments and training the young and talented work force to be more globally competitive.
Essentially, the message from the President’s chief finance man is that the government can pursue a massive infrastructure program while, at the same time, maintain a healthy fiscal condition and even reducing the debt-to-GDP ratio.
The financial feat alone deserves commendation.
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