Infrastructure spending as percent of Gross Domestic Product (GDP) is now twice the fiscal deficit-to-GDP ratio. This is impressive, according to Budget and Management Secretary Benjamin E. Diokno.

The deficit, defined as the difference of national government revenues and expenditures, has averaged 2.7% of Gross Domestic Product (GDP) in the first two years of the Duterte Administration. Meanwhile, infrastructure outlays are projected to hit 6.3% of GDP, easily twice the deficit-to-GDP ratio. This means that the country’s borrowings are financing worthwhile infrastructure investments that the Filipino people can look forward to enjoying.

          “The fiscal numbers reflect our seriousness in closing the country’s infrastructure gap,” said the Budget Secretary. “Filipinos may really look forward to better roads, comfortable mass transport systems like trains and modern public utility vehicles (PUV), among other infrastructure initiatives. The data support the eye test, with so many construction projects going on around the country,” added Secretary Diokno.

          Based on historical data, infrastructure spending as percent of GDP was not a priority of previous administrations. It hit 3.0% under President B. Aquino, 1.6% under President Arroyo, 1.8% under President Estrada, and 1.7% under President Ramos—all well below the 5.0% of GDP target for developing countries (see Chart 1). The Duterte administration has turned this around by investing an estimated 6.3% of GDP for public infrastructure in 2017 and 2018.

          “These numbers are consistent with our desire to spend as much as 7.0% of GDP for public infrastructure by 2022,” said Secretary Diokno.

The historical underinvestment in infrastructure was exacerbated by higher fiscal deficits for 2 decades (see Chart 2 and 3). This suggests that for many years, government revenues were not even enough to cover current expenses. As a prudent fiscal rule, infrastructure spending-to-GDP ratio should exceed the deficit-to-GDP ratio.

Table 1: Infrastructure Outlays vs Fiscal Deficit as % of GDP

          “We are spending above 6.0% of GDP on public infrastructure, while keeping the deficit-to-GDP ratio at less than 3%. No administration has done this before,” said the Budget Chief.

          In 2019, the Duterte administration has a deficit target of 3.2% of GDP. This will go back to 3.0% of GDP from 2020 to 2022.

Meanwhile, infrastructure spending will approach 7.0% of GDP in 2022 in line with the Build Build Build program. Higher government spending and upgrading of infrastructure will enhance the Philippine economy’s competitiveness.

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CHART 1: Historical Infrastructure Outlays as % of GDP

CHART 2: Historical Fiscal Deficit as % of GDP

CHART 3: Infrastructure Outlays vs Fiscal Deficit as % of GDP