PH warned of high GDP, but low-quality growth

Published March 10, 2018, 12:00 AM

by manilabulletin_admin

By Bernie Cahiles-Magkilat

The Philippines has been warned of achieving high Gross Domestic Product (GDP), but low-quality growth if the ambitious infrastructure projects do not result in additional revenue yield for the government.

Peter Lundgreen, founder and CEO of Copenhagen-based investment advisory firm Lundgreen’s Capital, explained that infrastructure projects of the Duterte administration entail huge capital.

“These projects will certainly boost GDP growth, but if these projects do not have positive return it will become worrisome, resulting in low-quality GDP growth,” he said.

“If the price gets too high, it has difficulty paying the debt incurred in building these projects.” The Duterte administration is spending R8.4 trillion over the six year period under its “Build, Build, Build” Program, which aims to make up for the long years of government underspending in the country’s infrastructure.

The government aims for a GDP growth of 6-7 percent where infrastructure is expected to contribute as much 7 percent from only 2 percent in the past.

“The risk is that government will enter into too many projects that will not generate positive returns,” Lundgreen said.

He noted that a railway may help a farmer bring his products to Metro Manila faster is a great idea, but the problem is how much does it costs to construct the railway. He feared of the farmer’s bananas ending more expensive once it gets to the market because of the pressure to recover the cost of the railway. “To ensure commercial viability, the farmer must also have higher prices. The private sector may end up not really earning more, but if you want a healthy economic growth the private needs to earn more,” he said.

“The reason for investing in infrastructure is to be able to make GDP grow even higher, so the need for more spending, but if these projects do not good revenues the growth becomes a low-quality growth.”

He, however, noted that his very bullish GDP growth forecast also largely depend on how the government is moving forward with the infrastructure. He warned though of the perils and risks of high growth.

According to Lundgreen, the government’s huge infrastructure push boost will certainly boost economic growth. New economic forecasts point to very high GDP growth of above 8 percent. Lundgreen himself believes an 8 percent GDP is attainable.

“But the bigger the ambition, the bigger the challenges,” he warned noting that the growth will actually depend on how the government is moving forward with the infrastructure investments.