• DBS cites budget risk of regional autonomy

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    ‘PPP overhaul also carries risk of less transparency’

    Giving the country’s regions greater autonomy under a federal form of government does not guarantee a better budget performance and could actually have an unintended opposite effect, Singapore-based bank DBS said in a broad assessment of the new government’s economic agenda.

    The lender also expressed doubts over any major overhaul to the Public-Private Partnership (PPP) program, which it said could lead to less transparency,
    The lender is particularly skeptical of one of Duterte’s key political agenda items: shifting the country’s governance to a federal system or otherwise devolving some authority from the central government to the regions and provinces in order to accelerate spendi ng.

    “Greater regional autonomy is never a guarantee for faster budget disbursement.

    Confusion between the regional and central authorities may actually bring about more complicated bureaucracy,” DBS said in its report.

    In its assessment of the new government’s economic agenda, DBS also pointed out that plans for increasing infrastructure spending, even though these will lead to raising the fiscal deficit limit, are generally positive for the longer-term growth but some initiatives, it stressed, could backfire.

    “Duterte’s game plan is positive for the longer-term growth outlook. But delivery is key,” it added.

    “The poverty rate continues to hover around 25 percent. Higher incomes are concentrated in the greater Manila region. And despite efforts to make the economy more dynamic, the number of Filipinos working overseas continues to rise,” the bank noted.

    “Until policies are implemented, it’s all theory. His first year in office begins now,” it concluded.

    Deficit agenda
    The Duterte Administration said that it is likely to implement the planned budget deficit starting this year, with much of the government spending focused on infrastructure spending, particularly through regional projects under the public-private partnership (PPP) program.

    The administration has proposed raising the government’s budget ceiling to 3 percent of gross domestic product (GDP), to allow fiscal space to increase infrastructure budget spending to 5 percent of GDP.

    “Probably, we hope to do it starting this year,” Finance Secretary Carlos Dominguez told reporters on the sidelines of the Department of Finance (DOF) flag-raising ceremony on Monday, but noted that the Development Budget Coordination Committee (DBCC) still had to discuss the target deficit.

    “We will talk to the DBCC about the targeting. One of our problems as you all know is what you call absorptive capacity. Let us not kid ourselves also, we have to be realistic about our target,” he added.

    DBS said the 3-percent budget deficit target might seem bold compared with the average deficit of 1.6 percent of GDP from 2006 to 2015.

    “Running a budget deficit of 3 percent of GDP is not necessarily a problem, given the public debt profile,” the bank said, noting that the public debt-to-GDP ratio in the Philippines has fallen in the last five years.

    Infra spending and PPP
    The lender said the planned infrastructure spending of 5 percent of GDP is more than double the actual disbursement during Aquino’s term, which averaged 2.2 percent of GDP.

    “The changes are set to take place immediately, and the annual budget for 2017 is said to be circa P3.5 trillion, a 17-percent jump from this year’s P3 trillion budget. The infrastructure budget is estimated to be as much as P1 trillion, a 25 percent jump from this year’s amount,” it said.

    DBS said that the Aquino Administration did not completely neglect infrastructure, but much more could have been done.

    “Total fiscal spending growth averaged 6.8 percent during Aquino’s terms, almost half the pace of revenue growth at 11.8 percent. And since its inception, the PPP center has only awarded 12 projects. Delays are most common during the negotiation phase,” it added.

    The Singaporean lender said the Duterte Administration’s specific plan for the PPP program is to replace the current bidding procedure for projects.

    “Future contracts will be awarded by an appointed committee, based on overall quality and not cost alone,” it said.

    While this idea could work, there are risks, it cautioned.

    DBS said transparency remains a risk, especially related to the proposed method of awarding the PPP projects.

    “Note that in Transparency International’s 2015 Corruption Perception Index, the Philippines was ranked at 95 from 168 countries, down from 85 in the previous year,” it said.

    However, Finance Secretary Dominguez stressed that the PPP program would shift much of its focus away from Metro Manila to countryside infrastructure development.

    “I  just went to the PPP Center, and there are none there. It’s like 95 percent Metro Manila. I saw it, and I said, you know this cannot continue,” he said.

    The DOF chief stressed that projects under the PPP Center has to be rethought, adding, “that is why we are meeting with the PPP Center for them to rethink the whole program and to encourage other people to make proposals from outside.”

    For instance, he said, the government needs to fix at least six major airports in the country and upgrade at least six more.

    “Those are the things that we should be doing, like ports,” he added.

    “I assure you that both the concept and the execution of the PPP program will be dramatically reviewed,” Dominguez stressed. “This should only secondarily be a tool for raising revenues.”

    “This is first and foremost an opportunity to bring private sector participation in nation-building,” he said. “The PPP program, in the new dispensation, will no longer be merely a PowerPoint presentation.”

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    1 Comment

    1. Maria Farhi on

      Focus on infrastructure programs that would wash back revenues or pay for itself (loans to build these infrastructures). Focus on ports for efficient commercial or port businesses, focus on safe airports for more tourism and faster air delivery of goods and products, focus on land transportation (highways and bridges) to bring harvests and other products faster to the consumers, focus on technology to inform farmers, producers, fishermen, meat and poultry business owners of what is going on outside their environment about their businesses, the weather, and the market and pricing for their products.