StanChart raises concern over delays in PPP projects
MANILA, Philippines - British banking group Standard Chartered Bank (StanChart) has lauded the resiliency of the Philippine economy but expressed concern over the continued inability of government to fully launch infrastructure-related projects under the Public-Private Partnership (PPP) program.
“The Philippines is a positive outlier thanks to overseas workers’ remittances and business processing-related foreign currency earnings. This has led to strong domestic consumption, supporting growth and a healthy external position,” StanChart said in a report released yesterday.
“We are underweight towards the Asian sovereign space due to fundamental concerns and an uptick in supply,” it added.
The report said the Philippine economy has so far been resilient in 2013 and gross domestic product (GDP) growth exceeded expectations, in contrast with many other Asian economies.
“We think growth will remain above trend in the near term, as domestic demand remains strong and investment activity has picked up,” it added.
StanChart further noted a pick-up in investment activity led by the construction and manufacturing sectors given the government’s push to increase infrastructure spending.
It further explained that strong growth has not led to macroeconomic imbalances, and the Philippines had maintained positive real interest rates. Inflation is stable thanks to a stronger peso and stable food prices, which make up 45 percent of the consumption basket.
The government aims to increase infrastructure investment to five percent of GDP by 2016 from 2.4 percent in 2012.
However, StanChart said it worries over the country’s inability to get majority of the programmed infrastructure-related projects under the PPP off the ground.
StanChart said 2013 might not be a good year for the PPP projects.
The Department of Transportation and Communications (DOTC) said the bidding for the P60-billion Light Rail Transit Line 1 (LRT-1) extension project has been reset anew for the first quarter of 2014.
“While we expect more projects to come on-stream in 2014, we think government expectations of a further P250 billion to P300 billion of PPP projects are slightly optimistic based on historical trends,” the report said.
Meanwhile, the Department of Finance (DOF) said it will maintain a fiscal deficit of two percent of GDP up to 2016, or the end of the Aquino administration’s term.
Government revenue will get a boost from strong GDP growth, which has been growing in the vicinity of seven percent in the last three quarters.
Other revenue drivers are the complete implementation of the ‘sin tax’ law said to contribution some 0.6 percent of GDP and the fiscal incentive rationalization bill, which will remove tax- and duty-free incentives from several industries.
The Philippines is also looking to issue $1billion in global bonds in 2014 to finance its deficit.