By Justine Irish D. Tabile, Senior Reporter — BusinessWorld

Infrastructure spending in the Philippines fell by 4% year on year in July, as lower disbursements by the Department of Public Works and Highways (DPWH) offset higher outlays for defense, agriculture, and railway projects, the Department of Budget and Management (DBM) reported.

The latest DBM data showed that infrastructure and other capital outlays slipped to P89.6 billion in July from P93.3 billion the same month last year. Month on month, spending declined by 8.6% from P98 billion in June.

The July contraction was narrower than June’s, when infrastructure and other capital outlays slid by 34.1% to P98 billion from P148.8 billion a year earlier.

The Budget department said July disbursements drew support from capital outlay projects under the Revised Armed Forces of the Philippines Modernization Program, the capital outlay component of the Philippine Rural Development Project, and payments for various rail transport projects.

“These items moderated the decline in the overall infrastructure expenditures for July amid lower disbursements posted by the Department of Public Works and Highways,” the DBM said.

Seven-Month Slump

For the first seven months of the year, infrastructure and other capital outlays slumped by 36% to P457 billion from P713.5 billion in the same period last year. That total accounted for 49.1% of the government’s programmed P931.5 billion in infrastructure and other capital outlays for the year. Hitting the full-year program would therefore require roughly P474.5 billion in disbursements over the remaining five months of the year, making the pace of payments in the months ahead a key figure to track.

The DBM partly attributed the year-to-date dip to lower DPWH disbursements amid strengthened procurement compliance, closer monitoring of ongoing projects, and the review and validation of payment claims and contractor documents.

“These processes are intended to ensure that payments are supported by properly verified and documented infrastructure works,” it said.

Projects in other sectors moved forward during the period, including defense modernization, rail and mass transport, school facilities, and agricultural infrastructure.

The seven-month tally excludes infrastructure spending coursed through subsidies and equity to government-owned and -controlled corporations, as well as transfers to local government units. Including these components, National Government infrastructure disbursements declined by 24.5% to P630.4 billion in the January-to-July period from P835 billion a year earlier.

Despite the weaker infrastructure outlays, overall government disbursements rose by 19.8% to P588.6 billion in July from P491.2 billion a year earlier. Total government spending for the January-to-July period climbed by 7% to P3.764 trillion from P3.517 trillion a year earlier.

Economists Cite Corruption Scandal Backlash and Bottlenecks

Marco Antonio C. Agonia, an economist at the University of Asia and the Pacific, said the decline in infrastructure spending reflected “backlash from the corruption scandal.”

“Aside from the Development Budget Coordination Committee’s flat infrastructure spending allocation for the third quarter, the Middle East war likely forced repricing of infrastructure projects given much higher building materials and labor costs,” he said in an e-mail. “To some degree, adverse weather also affected implementation timelines,” he added.

The DBCC is the interagency body that sets the government’s quarterly expenditure program.

Under the DBM’s Quarterly Fiscal Program, the government is targeting infrastructure and other capital outlays of P251.3 billion for the July-to-September period, 2.2% lower than the P256.9 billion recorded in the same quarter a year ago.

Francisco Cid L. Terosa, an associate professor and former dean of the University of Asia and the Pacific School of Economics, said the decline stemmed from a combination of implementation bottlenecks, a slowdown in government investment, and high base effects.

“There were bureaucratic delays in payouts, as implementing agencies were beset by delays in local project execution, procurement, and contractor billing submissions,” he said. “The cautious approach of the DPWH raised turnaround time for processing payment claims and progress billings of contractors,” he added.

Outlook

The government has lined up additional releases that could support infrastructure spending in the coming months. In August, the DBM released P209.6 billion in allotments for major agency requirements, including P32.4 billion for the North-South Commuter Railway and Metro Manila Subway projects, P31.2 billion for the Basic Education Facilities Program, P6.2 billion for health facilities, and P5.2 billion for farm-to-market roads. How quickly those allotments filter down into actual disbursements — given the tighter documentation and validation checks agencies now face — will help determine whether the quarterly targets are met.

Even so, Mr. Agonia said higher building costs and implementation delays could slow a rebound in infrastructure spending in the fourth quarter. For the October-to-December period, the government expects infrastructure and other capital outlays to increase by 49.4% to P328.4 billion from P219.8 billion a year earlier.

“Agencies’ slow absorptive capacity and increased procurement scrutiny may undermine the fourth-quarter rebound target,” he said.

Continued delays in infrastructure spending, he warned, could cause the economy to miss the government’s 3.5-4.5% growth target for the year. The Philippine economy expanded by 2.6% in the first half and needs to grow by 4.4% in the second half to hit the lower end of the full-year goal.

“Aside from the public spending and fiscal multiplier channels, private investment tends to follow public investment with a lag. Delayed project implementation could lead to a delayed recovery narrative for the Philippine economy over the medium term,” Mr. Agonia added.

Mr. Terosa likewise described public construction spending as an important growth driver. “If it continues to fall, gross domestic product growth can be dragged down to 3% to 3.4%, which is one of the slowest non-pandemic growth rates,” he said.

“Long-term productive capacity will contract, compromising investment and business growth. Consequently, unemployment could rise above 5%, exerting downward pressure on household income and consumer confidence,” he added.