Source: Business World
STATE ECONOMIC OFFICIALS assured investors in a briefing on Friday that the government remains committed to boosting spending and undertaking infrastructure buildup to prod gross domestic product (GDP) growth to a higher level.
The public-private partnership (PPP) thrust also remains intact despite delays and a change in framework of the government’s cornerstone infrastructure development program, economic managers said.
“We have been working to accelerate spending in the last few months. We just submitted a P90-billion package of… spending programs to the President, and approval is expected any time within the next week,” Budget Secretary Florencio B. Abad said in a panel discussion following a video presentation on first-half economic gains that kicked off the briefing.
Projects in the package include rural electrification, social housing and rural infrastructure such as local roads that will connect to national roads, he explained.
“These projects have an economic multiplier effect, address the needs of the poor and are quick-disbursing,” Mr. Abad said.
The P90 billion was sourced from continuing appropriations from last year, dividends of state firms and budgets from slow-moving projects, he added.
The Budget chief spoke in response to pleas of business sector representatives during the panel discussion for increased state spending and implementation of long-delayed PPP projects.
“Fiscal consolidation is the theme in the Aquino administration’s first year in office,” Bankers Association of the Philippines President Aurelio R. Montinola III said in his reaction to the first semester economic performance.
“But, in the coming years, we need government-assisted growth, especially through the PPP program.”
The government kept its fiscal deficit at bay in the eight months to August, with a budget shortfall totaling P34.493 billion, a little more than a tenth of the full-year programmed ceiling of P300 billion that is equivalent to 3.2% of GDP.
However, this was largely due to a drop in government spending which dragged economic growth to a modest 4% in the first semester, putting the 7%-8% full-year “fighting target” out of reach.
SIGNAL AWAITED
Mr. Montinola urged the government to focus on spending, particularly on infrastructure, to lift GDP growth in the second half.
This, he said, is signal private sector investors have been waiting for.
“The government secured a lot of investor interest after their [sic] trips to China, Japan and the United States,” Mr. Montinola said.
“Now, we need concrete projects to match this interest.”
The government’s PPP program, which was widely hoped to drive growth this year and next, must be pursued, Mr. Montinola stressed.
“We’ve talked about PPP for over a year,” he said.
So far, however, only the P1.956-billion Daang Hari-South Luzon Expressway link deal has been rolled out by the government, out of an original list of 10 big-ticket infrastructure deals, he noted.
The PPP deals as well as other public infrastructure projects were delayed this year as government agencies reviewed costs and procurement systems.
In the same panel discussion, Makati Business Club Chairman Ramon R. Del Rosario, Jr. lauded the Aquino administration’s campaign of good governance, but warned that “it is imperative we must get going.”
“The drop in infrastructure spending brought down GDP and employment in the first semester. Government spending must now be pursued aggressively for sustainable growth and job generation,” Mr. Del Rosario said.
“The private sector is doing its part. The government should do no less.”
‘NO RETHINKING GOING ON’
Economic managers also sought to assuage concerns after the Department of Transportation and Communications (DoTC) announced on Thursday that it would reconfigure the seven PPP deals under its supervision.
The government could just tap long-term, low-interest official development assistance (ODA) to build hard infrastructure, Transportation Secretary Manuel A. Roxas II had said.
Under this revised scheme, the private sector could manage revenue-generation, operations and maintenance of facilities concerned, he had explained.
“We said before that each PPP project would have a different financing mix,” Finance Secretary Cesar V. Purisima said during a press conference after the briefing.
“DoTC projects have a wide gap between economic desirability and financial viability, so ODA loans could be crucial for them.”
Asked why the government did not choose this financing mode earlier, Mr. Purisima replied: “We just changed the framework. We didn’t change the approach. There is no rethinking going on.”
For its part, the Department of Public Works and Highways, responsible for three PPP projects, said it would not change terms of its infrastructure deals.
“We have a program already. We will not change it,” Public Works Secretary Rogelio L. Singson told reporters in the same news conference.
FUNDAMENTALS SOUND
Despite these issues, Messrs. Montinola and Del Rosario cited good macroeconomic fundamentals of the country, such as well-managed inflation, healthy balance of payments and robust foreign reserves.
The country also jumped in global competitiveness rankings this year, as well as secured consecutive “positive credit rating actions” from debt watchers, they said.
Such sound fundamentals should help cushion the blow of a possible global economic crisis, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said during the panel discussion.
Equity and currency markets fluctuated last week amid fresh fears that the United States and Europe would fall into recession.
“There is a degree of impatience in financial markets right now, but we expect it will be temporary,” Mr. Tetangco said.
A slowdown among developed countries could affect the Philippines’ exports, Socioeconomic Planning Secretary Cayetano W. Paderanga, Jr. noted in the same discussions.
But the government has already been diversifying its export markets and products, he said.
While electronics exports, comprising more than half of merchandise shipments, had fallen as of July, other exports such as furniture and agriculture have been on the rise, Trade Secretary Gregory L. Domingo said during discussions.
More than merchandise exports, the Philippines can also rely on its services industry and remittances from overseas Filipino workers, he added.
The government has undertaken the necessary preparations to shield the Philippines from external shocks, Mr. Purisima insisted.
“We are monitoring this day by day. The government is on the ball,” he added.
“At the worst case, there is enough fiscal space should there be a need to stimulate the economy.”
INVESTMENT GRADE WITHIN REACH?
With these strong fundamentals, economic managers championed the Philippines’ drive to bag investment-grade credit rating.
“Investment grade is well within our reach in the medium term,” Mr. Tetangco said.
The Philippines currently has a BB+ rating from Fitch Ratings, its highest rating at just one level shy of the investment grade. It also has a BB rating from Standard & Poor’s and Ba2 from Moody’s Investors Service, both two notches below investment grade.
The government will first prioritize bringing Moody’s and S&P ratings on the same level as Fitch, Mr. Purisima said in an interview at the sidelines of the briefing.
“I told Moody’s and S&P that I believe they are underrating us. Based on our metrics, we should at least be a notch below investment grade. Once we get that, then we’ll start talking to them about investment grade,” he said.
The government will first work on raising revenues by expanding its tax base and modernizing revenue agencies to make collections more efficient, Mr. Purisima said.
Structural revenue reforms will also be undertaken, as recommended by credit raters, through streamlining of fiscal incentives and amending the “sin” tax regime on alcohol and tobacco, he added.
Revenues amounted to 13.5% of GDP in the first semester, against a full-year target of 15.1%.
“We will also work on improving our political institutions, the ease of doing business in the country and infrastructure investments,” Mr. Purisima said.
The Philippines’ quest for investment grade rating was supported by Citigroup Managing Director Stephen Taran, as he outlined its benefits.
“First, it opens up an entirely different universe of investors for the government and the private sector,” Mr. Taran said during the panel discussion.
Investment-grade countries, deemed credit-worthy, avail of lower borrowing costs, he said.
Companies stand to benefit as well, since interest rates they get abroad are pegged on sovereign benchmark.
Moreover, investment-grade countries are pushed to change the way their governments and businesses are run to ensure rule of law, good governance, strong political and civil institutions and sound economic management, Mr. Taran explained.
At the same time, “doing politics will be harder,” he said, since governments will be in a “straightjacket” of political and fiscal discipline to maintain investment grade.
“Investment grade rating is important and achievable, but it will be difficult (to keep),” Mr. Taran said.
