How Much More Can the Philippines Spend on Infrastructure?

The Philippine government has committed to spending 3% of its GDP on infrastructure. This increase will be financed through increased revenues, but the amount of revenue raised will determine the effect of the infrastructure spending. If public investment efficiency remains at the current level, the country’s stock of public infrastructure will increase. In short, infrastructure spending in the Philippines is on track to reach its goal. But how much more can it spend? The Philippines government has long struggled with revenue mobilization.

The BBB espoused a state-heavy role for infrastructure spending and overseas funding. However, after President Benigno Aquino III implemented more robust good governance safeguards, public infrastructure spending in the Philippines was still far below the target of 5 percent of GDP. The Duterte administration has insisted on the importance of BBB infrastructure projects, but these have had limited effects on post-tsunami recovery. It is important to note that infrastructure spending has a big role to play in a country’s economic recovery.

The Philippine road network is a crucial part of the transportation system, accounting for 90% of all passenger movement and 50% of freight. Although national roads cover much of the country, they only account for a small portion of the country’s road network, especially those that serve production and tourist destinations. Meanwhile, only 15% of the country’s total road network is national. Only about a third of national roads are paved. The rest are unpaved barangay roads.

The Department of Public Works and Highways (DPWH) is the national agency responsible for the nation’s roads. Its mandate also extends to barangay roads and municipal highways. It is estimated that the Philippines’ crumbling road network costs the country 876 billion pesos annually. Another $20 billion is wasted in energy and productivity, which is important when the Philippine economy is valued at over $250 billion. In addition to the PDH, international organizations are also advocating for infrastructure investments in the country.

Public infrastructure investment in the Philippines is low compared to its neighbors, with the country having a lower public capital stock than other ASEAN countries. Surveys and quantitative indicators paint a mixed picture of the public infrastructure in the Philippines, with ample room for improvement in these emerging markets. And the Duterte administration has started an infrastructure push. But it will be a slow process. Infrastructure investments should be implemented in phases, so that they can be reaped from the growing population.

The government’s procurement process is also problematic. It assumes that the projects will end up substandard due to choosing the lowest bidder. However, these government policies do not explicitly address the problem of scrimping on resources and employing subcontractors. This reduces the overall cost of a project and allows money to be used for other purposes. So, the Philippines must address the problem of low-quality infrastructure in order to get a competitive advantage over other countries.