Budget Allocation in Infrastructure Program

Infrastructure

The link between investments in infrastructure and economic growth is well established in literature. Almost by operational practices among governments, infrastructure is the basis for development. For an economy, it is the foundation on which the factors of production interact in order to produce output. Such economic and fiscal output serves as fundamental sources of stimulus packages in sustaining the delivery of basic social services.

According to the World Bank’s Word Development Report on Infrastructure (1994 and 2009), more infrastructure investment contribute to output directly as a measurable product and indirectly by enhancing the productivity of all inputs in producing output.

The report has identified core physical infrastructure investments that are economically productive and spatially connective forging the essential forward and backward linkages across all sectors.

Since 2001, the Philippine Economic and Development Plan prepared by the National Economic Development Authority (NEDA) defined core physical infrastructures as investments in the areas of energy, transportation, irrigation, telecommunications, and natural resource management/climate change adaptation i.e. flood control, storm surge/tide protection, etc.

The World Bank estimates an 85 percent correlation between Gross Domestic Product (GDP) growth and core infrastructure expenditures in the Philippines. This positive correlation essentially suggest better GDP per capita which is often considered an indicator of a country's standard of living. Hence, physical infrastructure is crucial in providing an all inclusive growth towards the attainment of societal happiness – the fundamental principle on Ekistics.

In the report from the Organization for Economic Cooperation and Development (OECD) in 2001, it was similarly noted that public investments in transport, communication and similar physical infrastructure enhance private sector innovation and productivity.

In particular, it affects a country’s economic development in the following ways:

¨   Good physical infrastructure improves a country’s growth prospects by strengthening its investment climate thereby making it attractive to foreign investors (World Bank 2005);

¨   Physical infrastructure lowers cost of production and significantly increases industrial productivity (Erquiga 2006, World Bank 2005, Sridhar and Sridhar 2004); and

¨   Information communication technology infrastructures, helps people access prices, markets and job opportunities (Sridhar and Sridhar 2004).

The presence of good infrastructure assists the activities of major economic sectors. For instance, Erquiaga (2006) cited the importance of infrastructure facilities in the sectors of tourism and agriculture. The absence or lack of transportation (roads and bridges), energy facilities and to some extent - clean water may result in the paralysis of activities in these industries.

Therefore, to remain bankable, more investments should be provided for the operations, maintenance, upgrading and building physical infrastructures in the Philippines where such systems is a major constraint (aging and limited) on profitability (Economic Intelligence Unit, 2009).