Re-estimating the Philippine social discount rate: implications and policy recommendations
Date
2011-04
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Abstract
The social discount rate (SDR) is used to discount the future cash flows of public investment For For Philippines, Philippines, it is pegged at 15% since 1980s 1980s and this value is deemed to be outdated and overstated as Thus, present. Thus, the aim of this study is to re- estimate the SDR which is measured as the weighted average of the returns to domestic investment, cost of postponed consumption, and marginal cost of foreign borrowings to account for the distortions in This sources of public funds. This study estimates yearly social discount rates ranging from approximately 6%-10% and social discount rates generally These from 7%-8% using a sensitivity analysis. These results show that there is a possible overstatement in the social discount rate presently used in project evaluation practices in the country which could result in forgone benefits of potential projects Given to the inaccuracy in the valuation Philippines future returns. Given this, the SDR currently employed in the Philippines should be re-evaluated to see if it reflects the real Philippines. cost of capital to improve the project evaluation practices in the Philippines.
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Keywords
social discount rate, public investment, returns to domestic investment, cost of postponed consumption, marginal cost of foreign borrowings, project evaluation, economic cost of capital