Can the Philippines afford to rebuild Marawi City

The Marawi conflict looks to be drawing to a close. The cost of rebuilding the area is enormous and will leave the Philippines vulnerable.

By John Pennington

It could cost the Philippines around 56 billion pesos (US$1.1 billion) to rebuild Marawi City. That equates to more than a third of the country’s defence budget, and the fight against Islamic militants has already cost as much as 6 billion pesos (US$120 million).

The fighting is dying down. The Philippines Army has control of almost all vital strategic locations and appears to be in a position to end the conflict.

Sources: GMA News Online, International Business Times, Intelligencer Post

However, the end of the battle is just the start for the government as far as Marawi is concerned. The Philippines’ Budget Secretary Benjamin Diokno claimed that the conflict “will not significantly affect the performance of the Philippine economy.” There is a massive gap between reconstruction cost estimates and the budgets available.

His words were at best optimistic and at worst deluded; Finance Secretary Carlos Dominguez III directly contradicted him by warning that the government may need to seek additional funding.

The government has allotted 20 billion pesos for reconstruction

The Department of Budget and Management set aside 20 billion pesos (US$390.3 million) for repairs. The money will come in three tranches – 5 billion (US$97.6 million) pesos this year, 10 billion pesos (US$195.2 million) next year and 5 billion pesos in 2019.

If more money is needed, the government will turn to other sources. Other government agencies will have to cut their budgets and divert funds. Diokno added that these could include the Department of Public Works and Highways (DPWH) and the Armed Forces of the Philippines.

The government pledged a 37.5% rise for the DPWH in its budget from 2017 to 2018 as part of President Rodrigo Duterte’s “Build, Build, Build” infrastructure programme. Cuts would likely result in projects being delayed or even cancelled.

Foreign donors such as China and Japan may also contribute to Marawi’s rebuild. Finance Secretary Carlos Dominguez III even mooted the possibility of raising up to 30 billion pesos (US$585.5 million) in bonds or debt securities.

Investment in the Mindanao region has increased year-on-year, but wherever the money comes from, reconstruction will mean levels of spending will reach a record high.

Source: Philippines Department of Budget and Management

Money will come from the National Disaster Risk Reduction and Management (NDRMM) Fund

The majority of the funds for the reconstruction will come from the calamity and rehabilitations funds (NDRMM). Some of the money will come from the 2016 and 2017 reserves and some from 2018. There is a proposed amount of 25.5 billion pesos (US$500 million) available for 2018.

NDRMM money is typically used to aid the response to natural disasters. Local government units must contribute at least 5% of their budgets to the funds on a yearly basis, ensuring there is always money available. However, rebuilding Marawi will make a significant dent in the NDRMM coffers. If major natural disasters hit the Philippines in the coming years, the country will have limited funds with which to respond.

In July, Albay 2nd District Representative Joey Salceda expressed concern that drastic cuts to NDRMM funding left the country short in the wake of major disasters such as flooding in Mindanao last January and earthquakes.

Even before the government announced plans to rebuild Marawi using the NDRMM budget, Social Watch Philippines warned that reducing the fund limits the effectiveness and flexibility of disaster response. Duterte’s decision to cut the NDRMM budget by more than 50% looked short-sighted at the time. It seems even more unjustifiable now.

Duterte may have to rethink his priorities

Duterte wants to reduce poverty and promote economic growth in the country. Accordingly, he pledged most money in the 2018 budget to education spending and infrastructure development. The Marawi reconstruction bill will force a rethink, and some of those budgets may change as funds are diverted to help the reconstruction effort.

The president is already increasing the Philippines’ debt burden. His government is calling in vast amounts of foreign loans to finance the 2018 budget. Although the country is under financial pressure, it can just about afford to rebuild Marawi. Nevertheless, using a significant portion of the disaster funding leaves the country dangerously vulnerable.

Diokno’s claims that the crisis will not affect economic performance are wide of the mark. At the same time, the government must act; first to resolve the Marawi conflict and then to rebuild the area. In this case, doing nothing would result in an even more significant burden in financial, human and political terms.

Rebuilding Marawi will take many years and will cost billions. Duterte and his government face uncomfortable choices. The government cannot ignore the region and leave thousands of people without a home. Unfortunately, it comes at a high price; the country will have fewer resources than it will need to deal with the next deadly earthquake or flood.