FITCH Group’s BMI Research is forecasting 11.2 percent growth in the construction sector between 2017 and 2021, as a result of the Duterte government’s ambitious infrastructure plan.
“The Philippines’ construction market is set to benefit from President Rodrigo Duterte’s heavy prioritization of infrastructure development, as well as funding support from China and Japan,” BMI Research said in a report released Wednesday.
BMI took note of the government’s commitment to infrastructure upgrade over the next six years, and deeper diplomatic ties with China aimed at drawing much-needed infrastructure investments.
“In October 2016, Duterte signed $24 billion worth of infrastructure and financing deals with China after a state visit to Beijing. Further [growth]in the sector will stem from development assistance and private investment from Japan, which pledged $8.7 billion to the Philippines in January 2017,” it said.
BMI also expects the relationship between the Philippines and China to remain strong over the coming years, with both having clear incentives for forging closer ties.
“China sees befriending the Philippines as part of a strategy of broaden engagement in the region, while the Philippines seeks to gain access to China’s generous infrastructure investment packages its peers in Southeast Asia are already benefiting from,” it concluded.
The Duterte administration is planning to spend P8.4 trillion over the next six years to close the country’s infrastructure gap that has for decades blunted its global competitiveness as an investment destination.
DoF vows to ensure infra buildup
The Department of Finance (DoF) on Wednesday said the government would ensure the country’s infrastructure buildup through tax reform and by tapping excess liquidity in the domestic market.
Finance Secretary Carlos Dominguez 3rd in a statement assured the public that the Duterte administration would exercise fiscal prudence and responsibility to ensure that public investments in infrastructure would create more jobs and business opportunities, which, in turn, would sustain the country’s growth momentum and accelerate poverty reduction.
He said the government will only resort to financing its ambitious infrastructure buildup through borrowings—and mostly from local sources—if the “economy can grow to finance its debts.”
“This administration is responsible enough to put money where it is required so there can be more businesses in the areas where the infrastructure will be built,” he added.
Dominguez said the Duterte administration is bent on having its Comprehensive Tax Reform Program (CTRP) approved in the Congress so that it could help raise enough revenues to bankroll the government’s ambitious plan.
The first package of the CTRP, Dominguez said, would serve as the “cornerstone” of the funding for the government’s “build, build, build” program.
Initial estimates by the DoF showed that the approved substitute bill for the CTRP would generate potential revenues of P82.3 billion in the first year of implementation.
The government will also tap excess liquidity in the domestic market by borrowing 80 percent from local banks and financial institutions, while getting only 20 percent of its financing requirements from overseas lenders.
“We will invest wisely and gain from the investments we have made to pay for the country’s debts,” Dominguez said in response to concerns that the government might fall into a “debt trap” in implementing its infrastructure program.
Dominguez said this economic strategy will not only upgrade the country’s poor infrastructure, but would also create more jobs, “which means more people paying taxes.”
“With good infra, real estate values will go up, so more property taxes can also be collected. More opportunities for businesses also means more revenues for the government,” Dominguez said. “That’s Economics 102.”