Construction seen slowing as corruption backlash deepens

By Katherine K. Chan

THE backlash against corruption in infrastructure projects could dampen construction activity in the next few quarters, Pantheon Macroeconomics said.

Nevertheless, Miguel Chanco, chief emerging Asia economist, and Meekita Gupta, Asia economist for�� Pantheon noted that a cleanup of the industry and procurement practices could boost the economy in the long run.

“Notwithstanding the ongoing political fallout, (President Ferdinand R. Marcos, Jr.’s) targeted anti-corruption drive probably will hit construction activity in the next few quarters, as public and private participants engage more cautiously in a sector that’s now under a spotlight,” Mr. Chanco and Ms. Gupta said in a commentary issued Monday.

On Sunday, at least 84,000 protesters gathered in various locations in Metro Manila in the wake of revelations of billions of pesos of fraud and waste in flood control projects, which were exposed after extensive flooding in many parts of the country in July.

At a Senate briefing earlier this month, Finance Secretary Ralph G. Recto estimated that such defective or non-existent projects cost the economy between P42 billion to P119 billion since 2023.

“For perspective, the upper estimate is equivalent to roughly 0.5% of GDP, significant for an economy still struggling to recapture its previous growth form,” Pantheon Macroeconomics said.

“Any short-term squeeze on public infrastructure is likely to be seen in the macro data: the current administration has commendably built on the previous government’s substantial ramp-up of infrastructure spending,” it added.

The Department of Budget and Management (DBM) reported that infrastructure spending and other capital outlays rose 6.5% year on year to P148.8 billion in June, bringing the first-half total to P620.2 billion.

The government infrastructure budget was P1.51 trillion this year, equivalent to 5.3% of gross domestic product (GDP).

On Sept. 11, President Ferdinand R. Marcos, Jr. signed Executive Order No. 94, which established the Independent Commission for Infrastructure (ICI) to investigate infrastructure-related corruption.

Since the flood-control scandal broke, the Anti-Money Laundering Council has frozen over 700 assets belonging to government officials and contractors suspected of involvement in flood control projects that failed.

“To be sure, the bigger the clean-up in the short run, however painful for current activity, the better it will be for the economy’s long-term prospects, as the poor quality of governance remains a major headwind in the Philippines,” Mr. Chanco and Ms. Gupta said.