THE International Monetary Fund said Tuesday the Philippines must increase public investments, especially on infrastructure, to raise its potential economic growth and reduce poverty.
A working paper titled “Improving Public Infrastructure in the Philippines” authored by Takuji Komatsuzaki studied the macroeconomic implications of public investment scale-up in the Philippines.
It found out that the Philippines’ public infrastructure investment was lower compared with its neighboring countries. Persistently low public investment in the Philippines, it said, had resulted in a low public capital stock relative to its regional peers. Survey-based indicators also painted an unfavorable picture on the current state of public infrastructure in the Philippines.
“With a low capital stock and a fast-growing young population, addressing the large infrastructure gap is needed to raise potential growth and reduce poverty and external imbalances,” the report said.
“This paper shows that increasing public investment spending can generate sustained output growth, and improving public investment efficiency can bring about substantial additional benefits,” it said.
It said upgrading public infrastructure was a major structural challenge in the Philippines. At 21.8 percent of GDP in 2014, the investment rate in the Philippines is well below regional peers.
The report said the main impediments to private investment were inadequate infrastructure, a weak investment climate and restrictions on foreign direct investment.
It said the low revenue base and fiscal consolidation prevented sufficient resource allocation for public investment in the past.
“Raising investment, particularly in infrastructure, would allow the country to reap the dividends of its young and growing population,” the report said.
“Public investment efficiency has room for improvement. The Philippines has made steady progress in governance and fiscal transparency. However, there is still much room to strengthen institutions to improve public investment efficiency,” it said.
In an earlier forum, IMF resident representative to the Philippines Shanaka Jayanath Peiris said the country must not rely solely on remittances from migrant Filipino workers and business process outsourcing industry, but instead improve both public and private investments to sustain the country’s economic growth momentum.
Remittances fuel private consumption and are one of the backbones of economic growth. Money sent home by migrant workers in 2015 grew 4.6 percent to a record-high $25.767 billion from $24.628 billion year-on-year, surpassing the 4-percent growth projection of Bangko Sentral ng Pilipinas.