The Philippines: Cutting infrastructure spending will hurt economy’s recovery, DoF says

  • THE GOVERNMENT should not reduce infrastructure spending as this may hurt the economy’s recovery, the Finance department said.
  • In an economic bulletin on 14 Jun 22, Department of Finance (DoF) Chief Economist Gil S. Beltran said it is important to continue infrastructure investments “due to its positive impact on competitiveness and economic recovery.”
  • “Cutting infrastructure spending may narrow down the deficit momentarily but will definitely be counter-productive in the long-run as far as economic recovery is concerned,” Mr. Beltran said.
  • In 1Q22, public infrastructure spending went up by 4% to PHP252.8bn, despite the election ban on new projects. The government is planning to spend PHP1.27tr, equivalent to 5.9% of gross domestic product (GDP), on infrastructure in 2022.
  • The incoming Marcos administration has already signaled it will continue the Duterte administration’s infrastructure program.
  • Mr. Beltran said the medium-term fiscal program shows a declining trend in the deficit, “largely on account of expenditures rising more slowly than GDP but that infrastructure spending is not sacrificed.”
  • The Development Budget Coordination Committee (DBCC) lowered slightly the budget deficit target to 7.6% of GDP in 2022, from 7.7% previously, which reflects the impact of the Russia-Ukraine war, China’s slowdown, and monetary policy normalization in the United States.
  • The DBCC set the deficit goal at 6.1% of GDP for 2023, 5.1% for 2024, and 4.1% for 2025.
  • Infrastructure spending is projected at 5.4% of GDP for 2023 and 2024, and 5.3% of GDP for 2025.
  • Fiscal consolidation and recovery will be key in preserving fiscal stability, Mr. Beltran said.
  • “The planned fiscal consolidation rests on shoring up tax revenues, winding down pandemic-related spending, and cutting non-priority expenditures,” he said.
  • Mr. Beltran also said the devolution of functions to LGUs and reforms in the pension system of the military and uniformed personnel, is expected to ease the fiscal burden on the National Government.

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