• IMF URGES PH TO REDUCE INFRA GAP:

    ‘Address weaknesses in budgeting, fiscal rules’

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    The Philippines needs to address its large infrastructure gap to boost its growth potential, the International Monetary Fund (IMF) said, pointing out that the country’s public investment management institutions may be strong in planning and project selection, but weak in fiscal rules and budgeting.

    In a working paper entitled “Improving Public Infrastructure in the Philippines,” IMF economist Takuji Komatsuzaki said addressing such challenges would help reduce the country’s poverty and external imbalances.

    Improving public investment efficiency has substantial additional benefits, he said, noting that eliminating half of the inefficiency would drive gross domestic product (GDP) higher than its present pace.

    “With a low capital stock and a fast growing young population, addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances,” Komatsuzaki said.

    “Raising investment, particularly in infrastructure, would allow the country to reap the dividends of its young and growing population,” he added.

    Lowest investment in Asean
    Right now, upgrading public investment particularly in infrastructure is a major structural challenge in the Philippines.

    The economist stressed that persistently low public investment in the Philippines has resulted in low public capital stock relative to its neighbors.

    The Philippines’ public investment had consistently been the lowest among Association of Southeast Asian Nations (Asean) countries in the recent past, averaging 2.5 percent of GDP in 2000 to 2014.

    “As a result, the [Philippines’] public capital stock is also one of the lowest among Asean countries, at around 35 percent of GDP in 2013 compared to the Asean average of 72 percent of GDP,” he said.

    Higher efficiency needed
    The paper showed that increasing public investment spending can generate sustained output growth, and improving public investment efficiency can bring about substantial additional benefits.

    Although the Philippines has made steady progress in governance and fiscal transparency, the economist said, public investment efficiency has room for improvement.

    For instance, Komatsuzaki said, the country’s relative ranking in the World Bank’s World Governance Indicators has improved every year since 2010, reflecting the high priority that the current administration has given to governance reform.

    “However, there is still much room to strengthen institutions to improve public investment efficiency. Both institution-based assessment and an outcome-based estimation of public investment efficiency suggest substantial room for improvement,” he said.

    The IMF’s Public Investment Management Assessment (PIMA) Framework–which assesses the strength of public investment management (PIM) institutions–showed that the Philippines’ PIM institutions are generally stronger in planning and implementing phases but weaker in allocating phase compared to the average of emerging and developing Asian countries.

    The framework showed that the country is relatively strong on national planning, management of public private partnership, and project selection. However, it has relatively weak institutions in fiscal rules, multiyear budgeting, and budget unity.

    Improving public investment efficiency has substantial additional benefits, the economist said, noting that eliminating half of the inefficiency would lead to real GDP higher by 5 to 6 percentage points.

    “With a low capital stock and a fast growing young population, addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances,” Komatsuzaki said.

    Given the need to ensure debt sustainability amid the large spending needs in other priority spending areas for inclusive growth, continued efforts mobilize revenue will be critical, including by enacting measures to offset any revenue eroding policy changes and preferably through a comprehensive tax reform that focuses on broadening the tax base, he added.

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