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Budget Cuts Dampening Growth In Construction Industry

Fitch Solutions Country Risk & Industry Research has downgraded its growth forecast for the Philippine construction industry, noting that projects under the “Build, Build, Build,” program will likely be delayed following the reduced budget for infrastructure this year.


In a commentary, Fitch Solutions said it lowered its 2020 growth forecast for the sector by 0.7 percentage points to 2.9%, largely due to the redirection of infrastructure funding to the government’s coronavirus disease 2019 (COVID-19) containment effort.


It now sees the infrastructure sector posting year-on-year growth of 3.2% this year from the 5.4% forecast it gave previously.


“The latest round of budget reductions for infrastructure would also mean that more government-funded BBB (“Build, Build, Build”) projects could face delays in 2020, and construction activity could be further reduced as a consequence,” it said.


“In light of lower projected infrastructure disbursements and budget cuts, we have made a downward adjustment to our forecast for Philippines’ construction sector,” it added.


Despite higher projected infrastructure spending for next year at P1.13 trillion as announced on June 7, a sharp 45% increase from this year’s estimates, Fitch Solutions said it will keep its forecast for 2021 unchanged at 8.5% in expectation of possible adjustments this year.


Citing a presentation by Finance Secretary Carlos G. Dominguez III last month, Fitch Solutions said projected capital outlays for 2020 were reduced to P725.1 billion on May 12 and “finalized” to P775.1 billion on May 27, from the initial program of P800.6 billion.


However, Budget Undersecretary Laura B. Pascua in early June said the infrastructure spending target now stands at P833 billion, reduced from P989 billion previously.


“This move came despite the government’s commitment made in April 2020 to utilize infrastructure development as a key strategy to boost economic activity following the COVID-19 pandemic,” Fitch Solutions said.


Data from the budget department also showed budgets set aside for the country’s two major infrastructure-implementing agencies were reduced as the allotments were reallocated to respond to the pandemic.


The Department of Public Works and Highways saw its budget slashed to P457.9 billion, from the initial P580.9 billion while the budget for the Transportation department was cut to P90.5 billion from P99.4 billion.


Infrastructure spending also fell in the first quarter, dropping 12.4% from a year earlier to P156.1 billion and 18% short of P191.1-billion target for the period.


“This was mainly due to limitations in construction and project progression after the ECQ (enhanced community quarantine) was imposed by the government,” it said.


It said deeper budget cuts for this year are still possible as the COVID-19 outbreak is still being contained while its forecast for the industry “remains significantly weighted to the downside,” with uncertainties over the duration and the overall impact of the pandemic.


“Furthermore, with the BBB program also reliant on private and foreign investments for funding, a slowdown in the global economy could result in a decrease in the amount of foreign direct investments (FDI) into the infrastructure sector,” it added.


source: bworldonline

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