A significant fixture in the Philippines’ sustained economic progress

Trains along the North-South Commuter Railway from an artist’s perspective — Photo from nscr.com.ph

Infrastructure serves as the backbone of economic activity, enabling the efficient movement of goods and people, facilitating trade, and enhancing overall productivity. Research indicates that every public dollar invested in infrastructure yields a substantial economic return. For instance, a 2022 analysis by the World Bank revealed that public investment has the highest multipliers, averaging around 1.5. This means that a dollar of public investment results in $1.5 of economic activity.

Furthermore, infrastructure spending has been shown to stimulate long-term competitiveness, enhance efficiency, and create employment opportunities. It also helps in the growth of industries and businesses, which ultimately leads to a better standard of living for citizens. Therefore, infrastructure development is closely linked to innovation, industrial growth, and sustainable development.

Public infrastructure projects have the power to boost the productivity of private capital and labor, leading to higher output and economic growth. According to an article published by the Economic Policy Institute, increased infrastructure spending can lead to enhanced productivity, improved efficiency, and long-term economic gains. For instance, a well-executed infrastructure project can lift private-sector productivity by a notable margin, contributing to increased efficiency and output.

The benefits of increased infrastructure spending extend far beyond immediate productivity boosts. A study by S&P Global stated that strategic investments in infrastructure can lead to sustained economic growth. For example, the potential macroeconomic benefits of infrastructure spending are vast, with estimates suggesting that each $100 billion in infrastructure spending could create around 1 million full-time equivalent jobs.

Moreover, the multiplier effect of infrastructure investment can lead to a larger impact than the initial spending that can result in greater economic growth and efficiency gains.

Building resilient infrastructure

Developing economies stand to gain significantly from strategic investments in infrastructure developments. These investments are stimulating growth and fostering innovation, ultimately paving the way for sustainable economic development. While the short-term effects of such investments may seem limited, the long-term benefits are substantial, particularly in terms of enhancing productivity and driving overall economic progress.

In fact, a study by the International Monetary Fund (IMF) found that a 1-percentage-point gross domestic product (GDP) increase in investment spending raises the level of output by about 0.4% in the same year and by 1.5% four years after the increase. Therefore, investing in public infrastructure has the potential to increase a country’s GDP, which could offset the rise in debt. Therefore, the public debt-to-GDP ratio may not increase, and public infrastructure investment could be self-financing if done properly.

In the Philippine context, improved infrastructure is boosting productivity, enhancing connectivity, and attracting foreign investment. The country has recognized the significance of investing in physical assets like roads, bridges, airports, and other large-scale projects to drive economic growth and competitiveness.

Public infrastructure investment in the Philippines has been consistently on the rise, with a notable increase from an average of 3% of GDP during 2011-2016 to over 5% in 2018. The surge in investment has been instrumental in driving economic growth, particularly in sectors like transportation and storage, construction, and financial services. A study by McKinsey & Company said that the growth in the Philippine economy has been fueled by the resumption of commercial activities, public infrastructure spending, and growth in digital financial services.

Portion of the Central Luzon Link Expressway (CLLEX), part of the Luzon Spine Expressway Network — Photo from pna.gov.ph

Under the “Build Better More” initiative of the Marcos administration, the government has allocated significant funding to enhance and modernize the transportation networks of the Philippines, encompassing roads, highways, railways, airports, and seaports. The total cost of such enhancement and modernization is approximately P9 trillion, with 194 Infrastructure Flagship Projects (IFPs) identified.

The program is a continuation and expansion of the previous “Build, Build, Build” campaign initiated by former President Rodrigo R. Duterte. President Ferdinand “Bongbong” R. Marcos, Jr. aims to allocate at least 5% of GDP annually towards infrastructure development, with a projected expenditure of about 5.3% in the 2024 budget.

Major ongoing projects include the Luzon Spine Expressway, which will improve connectivity across the main island, and the expansion of the Metro Manila rail system, including the North-South Commuter Railway and the Metro Manila Subway. Investments are also being made to upgrade and expand the country’s airports and seaports, enhancing the Philippines’ position as a regional logistics hub.

Meanwhile, the country’s agricultural sector, which remains a significant part of the economy, requires modern infrastructure to improve productivity and competitiveness. According to the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), targeted investments in areas like irrigation systems can significantly boost agricultural output and empower local economies.

In addition, policies like the Philippine Green Building Code, Sustainable Infrastructure Financing Facility, and Green Investment Program aim to promote the construction of environmentally friendly buildings and infrastructure. Notable examples include certification of buildings, such as the Leadership in Energy and Environmental Design (LEED) by the US Green Building Council (USGBC).

The National Economic and Development Authority (NEDA) has also been leading the promotion of infrastructure development in the Philippines. For instance, initiatives like the National Innovation Agenda and Strategy Document (NIASD) outline the country’s plan to enhance innovation governance and create a dynamic innovation ecosystem.

The purpose of strategic development

Infrastructure investments have a multiplier effect, particularly during periods of crises, contributing significantly to economic growth, productivity, poverty reduction, and human capital formation. Notably, public infrastructure serves as a powerful tool for policy makers to stimulate growth and reduce inequality, offering measurable economic impacts for every dollar spent.

According to the Asian Development Bank (ADB), infrastructure gaps remain a key challenge for the Philippines, limiting access to markets, raising costs, and undermining the competitiveness of private firms. The country’s fixed investment, at over 20% of GDP since 2013, still lags behind its regional peers like Indonesia and Vietnam, which have investment rates of around 30% of GDP, as mentioned by the ADB.

To address this challenge, the government is leveraging diverse funding sources, including official development assistance (ODA), public-private partnerships (PPPs), and the national budget. According to the Banko Sentral ng Pilipinas (BSP), the enhanced PPP regulatory framework, enacted in 2023, is expected to further mobilize private investment for infrastructure development.

Governments and policy makers play a crucial role in prioritizing infrastructure investments to unlock the transformative power of infrastructure. The ADB said that ensuring effective planning, adequate funding, and efficient management can lay the foundation for a resilient economy, attract investments, and enhance the well-being of its citizens. The American Society of Civil Engineers (ASCE) emphasizes the importance of sustained infrastructure investment across all sectors, incorporating sustainability and resiliency into infrastructure projects. — Mhicole A. Moral