Gov’t debt burden seen nearing P6T

The country’s economic performance is a consequence of the massive liquidity in global capital markets. I have yet to see the so called growth translate to real economic gains for the poor, this is all driven by cheap money that has resulted in the rich getting even richer and the poor marginalized further. 

Tsk, tsk..  Instead of further decreasing our debt, the government continue to accrue new ones. Yes, the debt is decreasing relative to the GDP. However, the debt itself is increasing at an annualised rate of about 12% which is greater than the actual GDP growth rate.  

Debt to GDP ratio is irrelevant when a government can not manage debt to sustainable levels. To put this into context, let’s do a simple math:  Our GDP is around US$213Billion and assuming a growth rate of 6% this year, this means an increase of around US$ 13B or PHP 546B of new economic activity. Note that from May to end of this year, our government will incur an extra PHP 370B as per the report above. However, while the increase in GDP is greater than the new debt, the government will only able to collect an extra revenue of PHP74B at a tax rate of 20%, not enough to justify the new debt intake. And next year another half trillion pesos of debt is programmed (and some more in succeeding years, perhaps?). This only means that the debt will balloon faster, and perhaps at unsustainable levels in a decade or in a few years. Some may argue that the debt is spread over long term and hence it doesn’t hurt that much. Really? Just consider this: we are paying the debts incurred by previous administrations (up to Marcos/Aquino I era) and our current government is actually asking for new ones so that it can augment repayment of these old debts. Also, a whopping amount of money is wasted for interest payments (this year, PHP150B as cited by the report above) – money that could have been used elsewhere such as government services, education, health, social welfare, military modernization, etc.

The problem right now is that government continue to incur shortfall in revenue collection from BIR and Customs (i.e., due to CORRUPTION) and also to accrue new debts from government owned corporation: PSALM, NAPOCOR, Bangko Sentral, etc (i.e., due to MISMANAGEMENT). To cover the annual budgetary shortfall, it continue to gobble up debt. Unfortunately, without tackling these issues, I don’t think we will ever achieve the much desired “investment grade” by the financial rating agencies.

We are experiencing good times now with the 6% GDP growth – but it is no reason to be in state of irrational exuberance. A plea to Noynoy: the Filipino people are already buried in debt, please throw away the debt shovel, stop digging and find a way out from this debt grave: for all us and the future generations. We have seen what unsustainable debt has done to Greece (taxes at 55%, reduced spending on social services, pay cut for government workers, scrapping of infrastructure projects, 30% unemployment, etc). I hope, 10 years from now, we will not find our country in the same quagmire.