DOF wants higher infrastructure spending, narrowed fiscal gap – Manila Bulletin

Reducing infrastructure spending to temper the growing stock of government debt will be counterproductive in the long run to economic recovery, the Department of Finance (DOF) has warned.

While it is necessary to gradually reduce the government’s budget deficit, Chief Financial Economist Gil S. Beltran explained that this should be done without sacrificing infrastructure spending.

“It’s important that infrastructure investment continues,” Beltran said. “Reducing infrastructure spending may reduce the deficit momentarily, but will certainly be counterproductive in the long run as far as economic recovery is concerned.”

In 2021, the budget deficit was estimated at around 8.2% of the economy, or gross domestic product (GDP), and is expected to fall to 5.1% by 2024.

In contrast, infrastructure spending, as a percentage of GDP, increased to 5.6% last year and is expected to increase further to 5.9%, before stabilizing at 5.4% by 2024. .

Beltran noted that while tax reforms and liberalization “certainly” generate investor interest and enthusiasm, infrastructure projects that remain unfinished do not inspire investor confidence.

Reforms enacted under the Duterte administration include the Business Recovery and Tax Incentives Act (CREATE), as well as amendments to the Retail Trade Liberalization Act, the Foreign Investment Act and the Public Services Act.

Beltran said CREATE, economic liberalization and infrastructure investment should be seen as key ingredients in a cocktail of economic stimulus that is strongest when all the ingredients are available.

“Simply put, a half-finished bridge doesn’t reduce travel time by even one minute. Infrastructure projects need to be fully completed before they can expand the country’s productive capacity and improve its growth potential,” Beltran said.

“Infrastructure is a durable asset with which the economy can embark on recovery, which in turn is accelerated with the implementation of CREATE and structural reforms on liberalisation,” he added.

Ultimately, the government’s recent fiscal and liberalization reforms as well as infrastructure spending will trigger a higher growth rate in per capita income and much more significant fiscal consolidation, the former DOF undersecretary said. .

Earlier, Finance Secretary Carlos G. Dominguez III said there was a need to reduce the debt-to-GDP ratio through fiscal consolidation, or reduce the budget deficit, so that the Philippine economy could resume its growth. dynamic growth.

Dominguez admitted that a high level of outstanding public debt, now equivalent to 60.5% of GDP, is not sustainable and should only be temporary.

The Philippines’ debt-to-GDP ratio was slightly above the 60% threshold considered manageable for emerging markets.