In 2014, the national government posted a budget deficit of P73.1 billion, less than half the P164-billion deficit incurred in 2013. The reason: revenues grew faster than expenditures. In December 2014 alone, the Department of Finance said the deficit dropped by 12 percent to P46.3 billion from P52.6 billion in 2013 because revenues increased by nearly twice the pace of spending.
That’s good news, from the perspective of the finance people, whose goal is to keep the amount the government spends as close as possible to the amount it earns in terms of taxes. The bad news: the country and the people must pay the price in the form of slow economic growth, which affects the lives of Filipino families.
In contrast to the government’s healthier fiscal condition, the economy grew by a disappointing 6.1 percent in terms of gross domestic product (GDP) in 2014, down from the record-high 7.2 percent posted in 2013 and short of the official GDP growth target of 6.5-7.5 percent for 2014.
Even before the official report on the economy came out, analysts were predicting a lower-than-target performance, mainly because of underspending by the government.
The Asian Development Bank (ADB) also blamed weak public spending as a contributor to the dismal GDP growth. Underspending continued in 2015, as a result of which GDP growth further slowed down to 5.8 percent, the slowest pace in four years.
Among the programs adopted by the government to reduce the deficit is the Public-Private Partnership (PPP) program. The PPP is supposed to be the flagship program to accelerate infrastructure development, but it was also used to rein in the fiscal deficit by spending less and keeping government borrowings low.
Thus, the outgoing administration has succeeded in establishing a healthy financial record for the government, but has failed to sustain GDP growth at the 7-percent pace, which is what is needed to spread the benefits of economic gains down to the socio-economic ladder.
With the incoming administration’s commitment to pursue infrastructure development, I believe it is time to review the PPP program. The primary objective of the government is to provide free basic services, such as roads, to the people. If that’s not possible, at least provide the services at the lowest possible cost.
The new administration has to decide whether to use PPP as a means to raise money for the government or to achieve its primary objective.
The PPP program will help accelerate infrastructure development but the government should not rely on it heavily because the profit motivation of private sector participants will mean more costly services to the public.
According to the PPP in Infrastructure Resource Center (PPPIRC) of the World Bank, the development, bidding and ongoing costs in PPP projects are likely to be more than for traditional government procurement processes, so the government must determine whether the greater costs involved are justified.
The PPPIRC also points out that there is cost attached to debt, referring to loans that PPP proponents will incur to finance their projects. “While private sector can make it easier to get finance, finance will only be available where the operating cash flows of the project company are expected to provide a return on investment (i.e., the cost has to be borne either by the customers or the government through subsidies, etc.),” the PPPIRC says.
Another problem with up-fronting all the big projects is that it limits the playing field to a few, the two or three biggest players, to the exclusion of the mid-size players.
Thus, it is creating an oligopoly, which I think runs counter to President Rodrigo Roa Duterte’s promise to level the playing field for businessmen.
That’s the problem when the government allows the finance people to run the infrastructure program.
(For comments/feedback e-mail to: mbv.secretariat@gmail.com or visitwww.mannyvillar.com.ph)
source: Business Mirror
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