More borrowings push PH debt to record P9.16T in July
MANILA, Philippines—National government debt climbed to a new record-high of P9.16 trillion as the government continued to borrow more, including through a record P516.3 billion in five-year retail treasury bonds (RTB), according to Bureau of the Treasury data released on Wednesday (Sept. 2).
If total debt was divided among a projected 108,771,978 Filipinos as of July 1, 2020, each would owe P84,251, which would be repaid by ordinary folks in the form of taxes.
Since January, domestic debt rose by P1.13 trillion to P6.26 trillion by July, while P303.97 billion was added to foreign debt to reach P2.91 trillion.
The Philippines can afford to borrow more given relatively low public debt levels, but for the president of the Federation for Economic Freedom (FEF), what’s the use of more money if these cannot be spent to better respond to the COVID-19 crisis?
“The Philippines came into the pandemic with strong financial ratios. It was about 41-percent debt-to-GDP, which is relatively strong in comparison to other countries—the US debt-to-GDP ratio is more than 100 percent of its GDP,” said economist Calixto Chikiamco on Tuesday (Sept. 1).
“Therefore the Philippines has room to borrow,” Chikiamco said.
Chikiamco also pointed to the country’s robust stash of dollars. “Gross international reserves are also quite healthy at about $94 billion,” he said. “The country is in no danger of not paying its debts.”
“This is one reason why the peso has become stronger—the Philippine peso has gained 4.3 percent against the US dollar, the highest in Asia,” Chikiamco said.
This year, the Philippines will borrow a total of $10.94 billion from its bilateral development partners as well as multilateral lenders for COVID-19 response, the state planning agency National Economic and Development Authority (Neda) said on Tuesday.
Neda clarified a statement on Monday that the amount of loans and grants was already secured by the government as of August. It said that the $10.94 billion “actually refers to the amount indicated in the third pillar of the four-pillar socio-economic strategy against COVID-19.”
Neda said the $10.94 billion figure referred to the amount in the third pillar of a four-pillar socioeconomic strategy against COVID-19. It said at least $8.6 billion in official development assistance (ODA) and $2.35 billion from the sale of global bonds are expected to generate funds for COVID-19 response.
In a report on Wednesday, debt watcher Moody’s Investors Service said that in some emerging markets, “the increase in debt burdens will also be large, exceeding 10 percentage points.”
Among the countries where Moody’s sees this happening are Chile, Colombia, Indonesia, the Philippines, Romania, Saudi Arabia and Thailand “although these sovereigns have lower debt levels to begin with.”
Last week, Neda chief and acting Socioeconomic Planning Secretary Karl Kendrick T. Chua told members of the Philippine Chamber of Commerce and Industry (PCCI) that uncertainties surrounding the COVID-19 pandemic had entailed a “balanced” response given the government’s limited resources.
As the government spent more—and, in turn, ramped up borrowings to be paid by taxes in the future—to fight COVID-19, Chua said: “The question really is, whether we ask you to pay them today, or we borrow first and ask your children or grandchildren to pay them later on.”
The government was nonetheless trying to eke out revenues amid a decline in end-July collections by 6.8 percent year-on-year to P1.69 trillion, which had been blamed by the government on “the adverse impact of the health crisis on economic activity.”
For one, the Bureau of Internal Revenue (BIR) gave online businesses until Sept. 30 to register as taxpayers, while Congress was discussing ways to collect value-added tax (VAT) from digital marketplaces, especially those run by global tech giants like Amazon, Google and Netflix, among others.
Chua told the Inquirer that “higher tax revenues can be sourced from both policy and administrative efforts to broaden the base.”
For instance, improved tax administration through the fuel marking program included in the Tax Reform for Acceleration and Inclusion (TRAIN) Act to combat oil smuggling and tax evasion already generated nearly P100 billion in correct taxes paid by petroleum firms since it was implemented starting September 2019.
To ensure that these loans and grants were well-spent, Chua said accountability for the huge borrowings was a joint effort across the government.
“Neda does an annual ODA portfolio review, the DOF also has its own review, the implementing agencies have implementation reviews, the ODA partners also do their review, and the Commission on Audit (COA) also does an audit,” he said.
According to 2019’s ODA portfolio review, the overall disbursement level of loans rose by 21 percent to $2.71 billion in 2019 from $2.23 billion in 2018, while the disbursement rate of project loans climbed to 64 percent in 2019 from 58 percent in 2018, Neda said on Monday.
The availment rate of project loans also improved to 73 percent in 2019 from 67 percent in 2018, Neda added.
“The recent loans portfolio performance showed improvements for the past two years,” Chua said.
In 2019, he said “all indicators of absorptive capacity improved.”
“We are grateful to our development partners for supporting us in our efforts to pursue much-needed reforms towards a higher growth trajectory and improving the quality of life of all Filipino people,” Chua said.
Finance Secretary Carlos G. Dominguez III told PCCI members last week that amid the COVID-19 crisis, the government was “able to quickly access emergency loans from our development partners and the commercial markets at very low rates and longer repayment periods” thanks to the Philippines’ investment-grade credit ratings.
“These loans have provided us a good amount of ammunition to fight the pandemic,” Dominguez said.
Budget documents for 2021 had shown at least 12 more loans worth $4.02 billion were in the pipeline in the next two years to finance response to and recovery from the COVID-19 pandemic.
Chikiamco, however, said he was worried that the government may not be spending as much as what was needed to arrest the increase in number of COVID-19 infections, currently the highest in Southeast Asia, as well as to address the socioeconomic fallout inflicted by the pandemic which shed millions of jobs and pushed the economy into recession.
“In fact, the strong peso may be indicative that the government’s fiscal response to the pandemic is mild,” Chikiamco said.
“Not only is the amount allocated in Bayanihan 1 and Bayanihan 2 relatively small as a percentage of GDP, but the government’s ability to spend whatever amount is allocated may be weak,” Chikiamco said.
The government as of end-August released P389.1 billion in funds under the earlier Bayanihan to Heal as One Act for COVID-19 response, while the Bayanihan to Recover as One Act awaiting President Rodrigo Duterte’s signature had set aside economic stimulus funds worth P140 billion to P165 billion.
In comparison, the Philippines’ nominal GDP was expected to be slashed by a bigger P660 billion to P18.9 trillion by yearend from P19.5 billion in 2019, based on projections of the Cabinet-level Development Budget Coordination Committee (DBCC).
Duterte’s economic managers had said they were bracing for a protracted fallout from COVID-19 and wanted to keep the budget deficit at around 9 percent—the average in Asean and among the Philippines’ emerging market peers.
But for Chikiamco, the government must spend an even bigger amount to “prevent GDP from shrinking further and thereby exacerbating the deficit-to-GDP ratio.”
Spending more, he said, would also “alleviate the people’s suffering and to assist MSMEs [micro, small and medium enterprises] from going into bankruptcy.”
“I’m for spending more to prevent what I call the ‘doom loop’—job losses leading to lower consumption leading to more corporate losses, leading to more job cuts, and so on in a negative feedback loop,” Chikiamco said.
“A robust fiscal response is needed to counteract the severe drop in consumption spending. Of course, it’s another question whether the government can spend the budget well and quickly,” Chikiamco said.
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