BMI flags rising risks in Philippine infrastructure

THE Philippines’ infrastructure sector faces rising risks from implementation hurdles and political concerns, BMI Research said in a Jan. 24 note.

The Fitch Group unit said the country fell three places to 11^th out of 21 economies in Asia and the Pacific, and fell 12 places to rank 32^nd out of 105 globally in its infrastructure Risk/Reward Index (RRI) that was tracked between February 2017 and this month.

BMI gave the Philippine Country Risk score of 50.8 — out of 100 where a higher score denotes a more attractive market — falling “below the regional average this quarter.”

“Although the Philippines continues to be one of the most opportune infrastructure markets in Asia, the market’s RRI score has gradually deteriorated due to persistent challenges in meeting project implementation deadlines and rising political risks associated with terrorism and Duterte’s anti-drug campaign,” BMI said in its note.

Both the government and economists have blamed the country’s huge infrastructure backlog for its failure to sustain overall economic growth beyond the six percent area.

The government of President Rodrigo R. Duterte, who assumed office in mid-2016, now hopes to spur growth to 7-8% annually until he ends his term in 2022 by spending some P8 trillion on 75 “high-impact” infrastructure projects within that period, hiking spending on this item each year to 7.3% of gross domestic product from 6.3% this year.

“The Philippines continues to have one of the highest Industry Rewards scores in the Asia-Pacific region, indicative of President Rodrigo Duterte’s ambitious infrastructure development initiatives and strong investment interest from Chinese and Japanese companies,” the report read.

“At the same time, we note that the project implementation process continues to be plagued with delays and bureaucratic setbacks. This has led to slower-than-expected growth in the construction and industry sector, weighing on the market’s Industry Rewards score,” it added.

The national government spent P43.8 billion on infrastructure and capital outlays in November last year, rising 44.8% — the fastest monthly pace so far in 2017 — from P30.3 billion in 2016’s comparable month. This brought the 11-month infrastructure spending to P486.5 billion, 14.2% more than the P426.1 billion recorded in 2016’s comparable period.

Aside from implementation delays, the Fitch unit said that investors still take into account concerns over the drug war as well as terrorist threats in Mindanao.

“Investor concerns surrounding pro-ISIS militants in southern Philippines and Duterte’s anti-drug campaign have weighed on the Country Risks component of the Philippines’ RRI over recent quarters,” BMI said.

BMI forecasts a 6.3% gross domestic product (GDP) growth for 2018 and 6.2% in 2019, which if realized, will be slower than 2017’s actual 6.7% and will fall short of an official 7-8% GDP annual target for 2018 to 2022.

Yesterday also saw debt watcher Moody’s Investors Service saying in a report that the country’s growth, along with that of Vietnam, will outstrip those of their peers in the Association of Southeast Asian Nations (ASEAN) on the back of better trade and monetary environments.

“We expect broad-based economic growth in the Asia-Pacific region in 2018. China’s growth will slow, but only mildly, in line with authorities’ desire for higher-quality growth; positive momentum will continue in Japan and recover in India,” Moody’s said in its report, adding that “the Philippines and Vietnam will be standouts among ASEAN economies.”

“Among the five-largest ASEAN emerging economies, we expect the Philippines and Vietnam to post the strongest growth next year, supported by trade and domestic demand.” — Elijah Joseph C. Tubayan