When will public construction pick up?

The economy decelerated to 6.5% growth in the third quarter of 2010. This is expected as the effects of election spending, front-loading of public work spend ing, and the expansion of the overall world economy wane. Another reason for the slowdown is that public construction contracted.

The contrast between the first half and the second half of the year is too stark to miss. Actual disbursements for infrastructure and capital outlays for the first semester of 2010 is in sharp contrast to the actual spending up to October 2010. Infrastructure spending for the last two months of the year is unlikely to make a big difference.

During the first half of the year, infrastructure and capital outlays exceeded the program by close to a third or P33.0 billion. DBM authorities explain the surge of public spending during the first half of the year as “due to fast-tracked implementation of projects intended to be completed this year, particularly those considered as SONA projects of the Arroyo administration, and the release of 50.0% of funds allocated for the supply of potable water to waterless municipalities.”

The major reason for the spending spree was the last-minute dash to complete the SONA projects of the previous Arroyo administration. That’s good but not totally. Being a SONA project was not a guarantee that it is socially worthwhile. Some SONA projects are not necessarily chosen on the basis of social profitability; some were selected on the basis of political payback or pecuniary opportunity.

The 50% fund release for the supply of potable water to waterless municipalities is of little significance. It’s a lame excuse. Fifty-percent release for the first half of the year is just right. The amount is not large enough unless there are extraordinary expenses hidden in the corporate budget of Local Water Utilities Administration. But then it should not figure in the national budget.

By contrast, during the second half of the year, or at least a big part of it, infrastructure and other capital outlays were below program by P22.3 billion or 10.2%. That’s the assessment for the whole 10 months of the year. Recall that for the first six months of the year, the infrastructure program was exceeded by P30 billion; for the first 10 months, there was underspending by about P22.3 billion. That’s a wide swing, a major reversal in public construction performance.

Some numbers available at the DBM Web site are revealing. During the first half of the year, the average monthly capital spending was P23.4 billion. By contrast, since July, the monthly spending has averaged only P13.6 billion.

Also, payment of progress billings for infrastructure projects under DPWH fell sharply: from a monthly average of P11.7 billion as of September to about half at P6.5 billion in October.

By the way, a government that is committed to transparency and public accountability should show a breakdown of infrastructure and other capital outlays. Other capital outlays which include purchase of cars for government officials, policemen, and barangays, for example, does not necessarily add to the productive capacity of the economy. They also include purchase of office equipment, air-conditioning, and the latest gadgets for public executives.

Public infrastructure spending should be reported separately. The public is entitled to know how much the government has spent for hard infrastructure, meaning roads and bridges, irrigation facilities, power plants, airports and seaports, and other similar projects. The latter category of projects are supposed to contribute to the expansion of the country’s productive capacity.

Understandably, a review of ongoing and pipeline projects is to be expected with the change in administration. But the review should be quick and thorough. It should not be overdone. Otherwise, economic activity suffers. Public construction is not like faucet that can be turned off and on without economic costs. A restart is usually costly.

There are lessons to be learned from an earlier Aquino administration. During her early years, President Cory appointed a very honest, upright man as secretary of Public Works and Highways . The man was so careful, made sure that there were no surprises in every proposed projects that came his way, and in the process approved no project. No project, no corruption. Predictably, the contribution of public construction to GDP during that brief episode turned negative.

Public construction is so important in the life of every nation, but especially for the Philippines which is lagging behind its ASEAN neighbors. In a number of surveys, poor infrastructure has been identified as a critical development constraint for the Philippines.

Public infrastructure creates a lot of jobs and opportunities. For a country with large and rising unemployment, a brisker and well-funded infrastructure program is imperative. Road and bridges that allow farmers to bring their produce to urban centers is a critical lifeline that provides livelihood to rural folks and cheaper food for urban dwellers.

I estimate that as part of a catch-up plan, the Philippine government has to spend the equivalent of 5% of its economic output for hard infrastructure. That’s approximately P450 billion annually for the next six to ten year. And big chunk of the public infrastructure requirement cannot be provided under the public-private partnership arrangements.

Hoping that a new national budget will be in place by Jan. 1, 2011, this early the young Aquino government should already gear up in having the limited infrastructure program front-loaded for the first half of 2011. By Jan. 1, 2011, DBM should be ready to issue the funding authority, while the infrastructure agencies should be ready to issue the bid documents.

And if additional funding comes along early next year, Aquino should seriously consider sending a supplemental budget to Congress around summer of 2011.

There is more to government budgeting than keeping an eye on the size of the deficit.