PH needs $11B for PPP projects to narrow gap
The Asean-6 will require more than $2 trillion in infrastructure spending by 2030 to serve the needs of a growing urban population and close the gaps in available facilities in the region, with $11 billion of the amount needed by the Philippines, global bank HSBC said.
Asean-6 is the Association of Southeast Asian Nations’ six biggest economies, namely Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.
In a report, HSBC said the infrastructure gap could narrow if the region, particularly the Philippines, would tap efficiently its public-private partnership (PPP) program.
“We estimate that Asean-6 requires over $2.1 trillion in infrastructure spending by 2030—in part due to the fact that the urban population will rise by over 90 million—but the current spending trend (if sustained) will cover only $910 billion,” said HSBC economist Joseph Incalcaterra.
“This roughly translates to a weighted average of 3.8 percent of GDP [gross domestic product]on infrastructure spending (on a country basis, this is close to 5 percent for Indonesia, the Philippines and Vietnam, and lower levels for Singapore, Malaysia and Thailand),” he explained.
The economist said that crucially, this projected requirement looks at overall spending—including public and pledged private sources—to meet the basic infrastructure requirements, based on an HSBC framework.
In order to effectively fill the infrastructure gap, more non-government financing is necessary, both from private sources and institutions such as the Asian Developmen t Bank and the Asian Infrastructure Investment Bank, Incalcaterra said.
“The stakes couldn’t be higher: the failure to sustain infrastructure spending will limit long-term potential growth and dampen Asean’s demographic dividend,” he added.
It is true, he said, that PPP programs are in place across the region, but the contribution so far has been tiny and institutional reforms are needed to attract more.
$11B infra gap in PH
In the Philippines alone, the pipeline of projects, most of which have not been initiated, “totals approximately $30 billion,” he said.
Assuming an average of 10 years for the projects, the contribution of PPPs can account for up to $3 billion a year, out of a total yearly infrastructure requirement of $25 billion, the HSBC economist noted.
“This may not seem like much, but it is not insignificant. Moreover, should the program be ramped up and the projects expedited—which is what President [Rodrigo] Duterte has called for —then PPPs can, indeed, be a feasible source for plugging the infrastructure gap of $11 billion per year,” he said.
Incalcaterra added that given years of fiscal prudence under the previous Administration, the current government has sufficient fiscal space to ramp up infrastructure spending.
However, he noted that the funding process is not as smooth for the private sector.
“Despite excess liquidity in the Philippine financial market, most of it is not productively deployed and sits in the central bank deposit facility,” he said.
Incalcaterra stressed that construction companies rely on bank loans for funding PPP projects, but they face single borrower limits by the central bank, which is mostly maxed out given the conglomerate nature of the Philippine economy.
“The BSP [Bangko Sentral ng Pilipinas] provided a three-year extension for PPP projects through end-2016, but this may not be extended. The clear solution is for more corporate bond issuance to match the long-term duration of projects,” he suggested.
“Unfortunately, the market infrastructure is not fully developed but the BSP has taken a pro-active stance in fixing these issues,” he added.
As such, Incalcaterra said governments across the region need to be much more aggressive with increasing PPP programs and instituting the proper reforms to deepen capital markets.
“Only then will we be able to truly fill the gaping Asean infrastructure pothole,” he concluded.