Philippines

The Philippines recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives for needed investments.1 This state policy, embodied in the 1987 Philippine Constitution, provides the impetus for public–private partnerships (PPPs) in the Philippines. These have been a key component of the overall strategy and development agenda of the Government of the Philippines for inclusive growth.

The country prides itself on having had a well-developed and vibrant PPP framework since the 1990s, with the advent of its build–operate–transfer (BOT) law, Republic Act No. 6957, and its amendatory legislation, Republic Act No. 7718 (“Amended BOT Law”). Since 2010, the Philippine government has introduced many governance reforms to the BOT framework governing PPPs. These reforms include the establishment of the PPP Governing Board (PPPGB), the Public–Private Partnership Center of the Philippines (PPP Center), and the Project Development and Monitoring Facility (PDMF) to provide financial support in preparing PPP projects. The PPPGB issues policy circulars and resolutions clearly defining and detailing PPP processes and mechanisms, including the roles, responsibilities, and functions of various parties involved in a PPP; ways to identify PPP projects (via Multi-Criteria Analysis [MCA]); termination payments; preferred risk allocation; and environmental and social safeguards for PPPs, among others.

The PPP Center has proved to be working efficiently in facilitating PPP project preparation and development, building the capacity of government contracting agencies, advocating policy reforms, monitoring the implementation of PPP projects, and building up a PPP knowledge system. It also builds partnerships with organizations that aim to accelerate infrastructure development in the countryside, such as the Mindanao Development Authority, the Development Academy of the Philippines, and the League of Cities of the Philippines. The project preparation and bidding are generally carried out using experienced, international transaction advisors through the PDMF.2 In addition to performing its coordination and monitoring functions, the PPP Center has been actively implementing capacitybuilding activities with implementing agencies, including local government units (LGUs) and water districts, in partnership with the Asian Development Bank (ADB), World Bank, and Infrastructure Asia among others.

In 2020, coronavirus disease (COVID-19) was declared a global pandemic. According to the World Bank, the Philippines was one of the countries hit hardest in the East Asia and Pacific region.3 The country went into one of the world’s longest and strictest lockdowns beginning in March of that year. For more than a year, most of the country was under some form of mobility restriction. In the second quarter of 2020, the economy went into its deepest contraction, at −16.9%.4 Nevertheless, the Philippines is still one of the most dynamic economies in the East Asia and Pacific region. Its economic dynamism is rooted in strong consumer demand supported by a vibrant labor market and robust remittances. The poverty rate declined from 23.3% in 2015 to 18.1% in 2021 despite the shocks endured by the COVID-19 pandemic and other global headwinds, such as high global commodity prices and tight global financial conditions. The Philippine economy remained robust at 5.5% growth in 2023, which is among the top growth performances in the East Asia and Pacific region. Over the medium term, the growth outlook continues to be supported by strong domestic demand, driven by a robust labor market, continued public investments, and the positive effects of recent investment policy reforms that could boost private investment.5

The global economy was expected to rebound after the pandemic, but Russia’s war in Ukraine from February 2022 caused commodity prices to increase. The Philippines’ nominal debt nearly doubled, from ₱7.7 trillion ($132.06 billion as of 28 October 2024) in 2019 to around ₱13.4 trillion ($229.81 billion as of 28 October 2024) right after the pandemic. Geopolitical tensions meant the cost of borrowings climbed post-pandemic as central banks raised their interest rates to combat inflation. The Philippines is refinancing the large borrowings contracted during the low interest period in 2020–2022 with new debts that bear higher interest rates. The country is using debt to spur economic recovery by investing in more infrastructure and human capital development, even as it aims to push its debt-to-gross domestic product (GDP) ratio below 60% in the medium term.6 As of the first half of 2024, the Philippines’ debt-to-GDP ratio stood at 60.9%, down from 61.0% a year before.7

Taking off from lessons learned from the COVID-19 pandemic, the Philippine government adopted the Philippine Development Plan 2023–2028 (PDP) in early 2023.8 The PDP is based on an eight-point socioeconomic agenda consisting of food security, improved transportation, affordable and clean energy, health care, education, social services, sound fiscal management, and bureaucratic efficiency. It seeks to enhance connectivity through infrastructure and transport to link markets to each other, as well as to pursue greater collaboration between the local and national governments and operationalize the Philippine Supreme Court’s ruling in the Mandanas-Garcia case to optimize the sharing of responsibility between them.9 It also recognizes the rationale for favoring PPPs in enhancing and upgrading infrastructure, given the country’s tight national fiscal space constraining public investments. Over the PDP’s implementation period, annual spending on infrastructure is estimated at 5%–6% of GDP, and, in line with this, the government will continue to tap viable funding mechanisms to augment public resources in financing critical infrastructure projects, such as reinvigorating PPPs in financing priority infrastructure projects.10

Challenges encountered by various implementing agencies and lessons learned in PPPs for over 3 decades led to the passage in December 2023 of the Public–Private Partnership Code of the Philippines (Republic Act No. 11966) (“PPP Code”). The PPP Code effects major reforms in the PPP framework to achieve three main objectives: addressing ambiguities in the existing law, responding to key challenges affecting the implementation of PPP projects, and fostering a more competitive and enabling environment for PPPs. The PPP Code repeals, among others, the Amended BOT Law and consolidates the legal frameworks for private sector participation in both national and local infrastructure and development projects, including joint venture arrangements and other contractual arrangements for toll road projects or toll facilities. The Implementing Rules and Regulations (IRR) of the PPP Code were issued in 2024.

Apart from the PPP Code, a key reform supporting PPPs has been relaxation of the nationality requirement for investment in certain sectors. Earlier, in 2022, the Philippines amended the Public Service Act by limiting the public utilities that are subject to the 60% Filipino nationality requirement under the Philippine Constitution to only those that operate, manage, or control in the following sectors: distribution or transmission of electricity; petroleum and petroleum product pipeline transmission systems; water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; seaports; and public utility vehicles.11 Also in 2022, the Department of Energy (DOE) removed the nationality requirement for renewable energy in relation to the exploration, development, and utilization of solar, wind, hydro, and ocean or tidal energy.12 The government continues to push for further critical reforms to sustain economic growth in the medium to long term, such as reforms to the Philippine capital markets, amendments to the Right-of-Way Act, creation of a Department of Water Resources, amendments to the Foreign Investors’ Long-Term Lease Act, and amendments to the Electric Power Industry Reform Act (EPIRA).13

Despite these reforms, the Philippines’ world competitiveness is far from ideal. Out of 67 countries, it currently ranks 52nd in terms of overall performance, dropping seven notches from 45th place in 2020 to 52nd place in 2023 in IMD’s World Competitiveness Rankings. The Philippines is also at the bottom of the list among its neighboring peers, ranking 13th out of 14 countries in Asia and the Pacific. In infrastructure, the Philippines ranks 61st out of 67 countries, with its positions for infrastructure for health and environment and for education at a low 61 and 63, respectively.14

To bridge the infrastructure gap, the National Economic and Development Authority (NEDA) approved 75 infrastructure flagship projects (IFPs) in 2017 under the Build-Build-Build Program of the previous administration, costing ₱1.6 trillion ($27.44 billion as of 28 October 2024), which was later increased to 112 in 2021 with a total cost of ₱4.7 trillion ($80.6 billion as of 28 October 2024). However, most of these IFPs were financed through official development assistance (ODA), and not PPPs. In 2023, NEDA introduced the IFPs under the Build-Better-More Program.15 The IFPs represent vital and transformative infrastructure initiatives that are urgently required to exemplify the overall Build-Better-More Program. They will be incentivized and be given priority in budget preparation and review and processing of approvals, clearances, and authorizations, within the processing time and deadlines provided by law.16 As of August 2024, there are 47 IFPs that are identified as PPP projects under physical connectivity (roads and bridges, rail, air, urban transport, maritime, and data management) and health, with a indicative total project costs of ₱2,852.05 billion ($48.92 billion as of 28 October 2024).17

In the government’s approved national budget of ₱6.326 trillion ($108.49 billion as of 28 October 2024) under the General Appropriations Act (GAA) for the fiscal year 2025, education and health are top priorities. Education has the highest allocation at 16.7%, or ₱1.055 trillion ($18.09 billion as of 28 October 2024), while health accounts for 4.2% of the national budget, or ₱267.8 billion ($4.59 billion as of 28 October 2024). The government will finance the construction of at least 6,000 classrooms and continue the implementation of the Universal Health Care Act. Agriculture receives 3.8%, or ₱237.4 billion ($4.07 billion as of 28 October 2024) to support farmers and fisherfolk. To finance the administration’s flagship Build-Better-More Program, the Department of Public Works and Highways (DPWH) has been allocated the second-highest budget at 15.9%, or ₱1.007 trillion ($17.27 billion as of 28 October 2024) while the Department of Transportation (DOTr) receives the highest increase, from ₱74 billion ($1.27 billion as of 28 October 2024) in 2024 to ₱123.7 billion ($2.12 billion as of 28 October 2024), accounting for 2% of the national budget for 2025.18

The Philippines currently maintains two lists of infrastructure projects. The PPP Center maintains a database of PPP projects and publishes a list of PPP projects identified across various sectors. NEDA publishes the list of IFPs that are funded by government appropriations under the General Appropriations Act (GAA), ODA and/or PPPs. The figure below shows the priority infrastructure projects that are ongoing and planned across the various IFP sectors (physical connectivity, water resources, agriculture, health, digital connectivity, power and energy, education, and other infrastructure), regardless of funding source, with the indicative total project costs per sector (in $ million). Projects in the physical connectivity sector account for the largest share in value, with 135 projects for roads, railways, ports, airports, and other transport having a total indicative project cost of ₱8,394.42 billion ($143,964.30 million as of 28 October 2024).

Indicative Total Project Costs of Infrastructure Flagship Projects by Sector, as of August 2024($ million)

Government’s Strategy Action Plan for Public–Private Partnerships

Through the years, the Philippine government has made great strides in pursuing an enabling environment for PPPs in the country. Its efforts to address regulatory roadblocks have included lifting foreign ownership restrictions on certain sectors, enacting the PPP Code, and prioritizing bills to improve institutional arrangements and introduce reforms in key sectors, among others. The PDP highlights the importance of PPPs at the national and local levels and, as such, the Philippine government continues to pursue efforts to improve the enabling environment for PPPs.

The PDP’s strategy action plans for private sector participation/engagement include the following

• Reconfigure PPPs through the enactment of the PPP Code to address crosscutting issues of a weak competition environment and attract foreign investments.
• Prepare infrastructure sectoral master plans and road map to provide a more comprehensive understanding of infrastructure gaps and needs and serve as a sound basis for identifying PPPs.
• Strengthen PPPs on technical and vocational education and training.
• Create and facilitate the adoption of modern production technologies for the agriculture, forestry, and fisheries sector.
• Strengthen the role of domestic investor firms, especially in rural areas, in drawing foreign partnerships in greenfield investments.
• Examine unique PPP transaction arrangements with the private sector, especially for the agriculture, forestry, and fisheries sector.
• Foster capital market development by incentivizing PPPs to become publicly listed firms and supporting the development of a local credit market and a credible and independent LGU credit rating system.
• Improve/upgrade existing airports to meet aerodrome design safety standards set by international and local airport authorities.
• Encourage PPPs to enhance and strengthen investments in managing and developing water infrastructure and services and manage obstacles to private sector participation.
• Foster the resilience of communities and institutions.
• Support private sector partners in aligning their respective environmental, social, and governance targets and investments (e.g., corporate social responsibility programs) with local priorities and targets on climate change adaptation and disaster risk reduction to efficiently allocate limited resources toward building resilience.19

Challenges to Public–Private Partnerships in the Philippines

Government spending, along with the timely implementation of programs and projects under the national budget and capital formation through the implementation of the government’s infrastructure and PPP programs, is expected to drive growth. On the other hand, risks to the growth outlook include, among others, the effects of climate change, delays in the enactment of critical reforms, weak absorptive capacity of implementing agencies and LGUs, and geopolitical tensions and conflicts.20

The PPP Code has come a long way in relation to addressing the major issues that have hounded PPPs in the Philippines over the years. Still, further legal, regulatory, and institutional reforms are necessary to address the following remaining key challenges to PPPs:

• delays in right-of-way (ROW) or site acquisition by the government, which delays adversely affect the implementation of PPP projects;
• political and regulatory risks occasioned by political interference in the rate-setting and adjustment mechanisms of PPP contracts, and inability of PPP contracts to endure changes in the administration, which are among the major deterrents in attracting investors, especially international entities, to participate in the country’s PPP program;
• lack of clarity and efficiency in the payment of government compensation or financial support to the concessionaire, which requires an appropriation and a determination by the Commission on Audit (COA), which has jurisdiction over money claims against the Philippine government, as well as lack of a robust framework for managing fiscal commitment and contingent liabilities;
• application of the nationality requirement to sectors as required by the Constitution and certain laws, especially since the nationality requirement not only limits the ownership of the entity and the composition of the board of directors but also requires that all executive and managing officers of the entity must be Filipinos. Meeting qualification and prequalification requirements to comply with nationality requirements, especially for listed companies, is also a challenge during procurement, thus limiting competition;
• major changes to the project structure, terms, and conditions of PPP projects after they are already launched for bidding, thereby delaying procurement or even resulting in bidding failure;
• the assessment of unpaid real property tax and related enforcement actions taken by certain LGUs on certain PPP project assets, which has become an issue during the procurement of some PPP projects, such as the Manila Light Rail Transit (LRT)-1 Cavite Extension Operation and Maintenance, Mactan–Cebu International Airport (MCIA), and Cavite–Laguna Expressway projects;21
• challenges within the implementing agency, including lack of capacity to review and appraise projects and related contracts, interface issues related to the coordination of various teams within the implementing agency, and limited capacity and lacking guidelines for monitoring and evaluation (M&E) of projects;
• unwillingness on the part of implementing agencies to enter into a direct agreement with project finance lenders. Existing PPP contracts permit only an acknowledgment and consent agreement (in prescribed form annexed to the PPP contract) to be signed among the implementing agency, the concessionaire and the lender’s agent, wherein the implementing agency acknowledges the assignment by the concessionaire of its rights under the PPP contract and the creation of permitted security interest;
• despite improvements in the USP framework under the PPP Code, presence of the original proponent’s right to match continuing to act as a deterrent to comparative bidders, making USPs less competitive and not aligned with the framework for solicited PPPs and best practices;
• challenges to arbitration, which include a legal framework imposing mandatory referral of construction-related disputes to a Philippine quasi-judicial institution, the Construction Industry Arbitration Commission, and the related judicial process, which often takes several years to conclude; and
• natural hazards, especially strong typhoons that hit the country every year, which are among the greatest challenges to PPP infrastructure in the Philippines. Infrastructure has to be designed, built, operated, and maintained to be climate and disaster resilient.

It is crucial that a pragmatic approach be put in place to address these challenges. This will require the cooperation of all three branches of the Philippine government: executive, legislative, and judicial.

• 1Republic of the Philippines. 1987. The Constitution of the Republic of the Philippines.
• 2ADB. 2020. Public–Private Partnership Monitor: Philippines.
• 3World Bank. 2022. Supporting the Philippines’ COVID-19 Emergency Response.
• 4Government of the Philippines. 2023. Philippine Development Plan 2023–2028.
• 5World Bank. Philippines Overview.
• 6Department of Finance. 2024. Agenda for Prosperity: Fulfilling the Needs and Aspirations of the Filipino People – Revenue and Financing Program.
• 7Bureau of the Treasury. 2024. National Government H1 2024 Fiscal Deficit at 4.9% of GDP Debt Ratio Recorded at 60.9%.
• 8Government of the Philippines. 2023. Executive Order No. 14, Series of 2023.
• 9See Supreme Court of the Philippines. 2018. Mandanas v. Ochoa, G.R. No. 199802.
• 10Government of the Philippines. 2023. Philippine Development Plan 2023–2028.
• 11Government of the Philippines. 2021. Republic Act No. 11659. However, the amendment restricts foreign equity in entities engaged in the operation and management of critical infrastructure such as telecommunications to 50%, unless the country of the foreign investor accords reciprocity to Philippine nationals.
• 12See section on Foreign Investor Participation Restrictions for details on the current nationality requirements of the Philippines.
• 13National Economic and Development Authority (NEDA). 2024. Agenda for Prosperity: Fulfilling the Needs and Aspirations of the Filipino People – Updates on the Philippine Development Plan and Recent Economic Outlook.
• 14IMD. Philippines.
• 15The Build-Better-More Program is the infrastructure program of the Philippine government. Under the strategy framework of the PDP, the overarching objective for the infrastructure sector over the medium term is to build better more, to enable economic transformation for a prosperous, inclusive, and resilient society.
• 16NEDA. 2023. Infrastructure Flagship Projects (IFPs) under the Build-Better-More Program.
• 17NEDA. 2024. Infrastructure Flagship Projects (accessed 27 October 2024).
• 18Department of Budget and Management (DBM). 2024. Agenda for Prosperity: Fulfilling the Needs and Aspirations of the Filipino People – FY 2025 Total Expenditure Program; Department of Budget and Management. 2024. Briefer on the 2025 Proposed National Budget AGENDA FOR PROSPERITY: Fulfilling the Needs and Aspirations of the Filipino People; Government of the Philippines. 2025. General Appropriations Act (GAA) FY 2025; Presidential Communications Office. 2024. Education remains top priority in ₱6.32T nat’l budget.
• 19Government of the Philippines. 2023. Philippine Development (PDP) Plan 2023–2028.
• 20NEDA. 2024. Agenda for Prosperity: Fulfilling the Needs and Aspirations of the Filipino People – Updates on the Philippine Development Plan and Recent Economic Outlook.
• 21Following issues raised by bidders during the procurement of these projects concerning real property tax, the government assumed liability for real property tax due to LGUs on project assets, except those relating to the commercial business of the concessionaire.