With an impending return to normalcy this year, the next administration will have to focus on how it will repay the debt that piled up throughout the prolonged COVID-19 pandemic, President Duterte’s chief economic manager said Friday.
“We are very confident that 2022 will be the year that we will return to normalcy. Despite the surge in infections due to the Omicron in early January, we have succeeded in limiting severe infections and deaths,” Finance Secretary Carlos Dominguez III said in an interview with CNBC.
Dominguez noted that daily COVID-19 cases dropped from the peak of 39,000 in the middle of last month to only 2,000 levels this month. Out of the 223 million vaccine doses secured by the Philippines, 132 million shots were administered as of mid-February — as such, 61.5 million Filipinos were already fully vaccinated on top of 9.2 million who also received boosters.
The sustained mass vaccination was expected to pave the way to reopening of more productive economic sectors to achieve 7-9 percent gross domestic product (GDP) growth this year.
However, the purchase of the bulk of COVID-19 vaccines from global suppliers who made billions of dollars out of these agreements was among the reasons for the Philippines’ ballooning debt. In all, the Philippines borrowed $2 billion (over P102 billion) — $1.2 billion for vaccines and $800 million for booster and pediatric shots — from three multilateral banks last year. It also borrowed from bilateral partners such as Japan and South Korea to finance the rollout, including logistics and equipment like cold storage needed for the vaccination program.
As of end-2021, the Philippines’ public debt-to-gross domestic product (GDP) ratio climbed to a 16-year high of 60.5 percent, exceeding the 60-percent threshold deemed as manageable for emerging markets.
Dominguez nonetheless told CNBC that “we have to realize that the spike in our debt-to-GDP ratio is well-within affordability, and well-within our rating peers’ experiences” or other economies which have the similar investment-grade credit ratings as the Philippines.
Fitch Ratings, for instance, on Thursday kept the Philippines’ ‘BBB’ rating — one-notch above minimum investment grade — as the estimated share of general government (GG) debt — combined obligations of the national government, local governments and social security institutions, less their bond holdings — would likely be below-average of its similarly rated peers during the next couple of years.
Dominguez said on Viber that the Department of Finance (DOF) was now “putting the finishing touches” on its fiscal consolidation proposal, which will be pitched to the next administration, so it can raise more revenues to repay the bigger debt.
While Dominguez did not say which new or higher taxes may be included yet, he told CNBC that the fiscal consolidation package will be discussed with all of the presidential aspirants in the running for the Philippines’ chief executive position in the May 9 national elections.
“We are ready to brief all presidential candidates and their economic teams, and we will present to them ideas on how to handle the increasing debt,” Dominguez said.
DOF officials had said the next administration could set its sights on “relatively untaxed” sectors. For instance, the viability of carbon tax, a levy on cryptocurrencies, removal of all exemptions from 12-percent value-added tax (VAT) payments, as well as further hikes of excise taxes on cigarettes, e-cigarettes, alcoholic drinks and sugary beverages were currently being studied and considered.
Dominguez expects a smooth transition to the next administration just like previous turnovers from one president to another following the ouster of dictator Ferdinand Marcos in 1986. “We have a history of orderly and peaceful transfers of power. We have already been preparing our transition documents for the next administration.”
In another statement issued by the Bangko Sentral ng Pilipinas (BSP), Dominguez was quoted as saying that recent reforms and continuity in the bureaucracy will help the next administration maintain the economy’s solid macro fundamentals.
“The Congress’ recent passage of game-changing economic reforms — namely the amendments to the Foreign Investments Act, Retail Trade Liberalization Act and Public Service Act, which are meant to further open the economy to foreign investment — is a strong indication that the economic reform momentum will continue beyond the current administration. These reforms will help the Philippines return soon enough to its rapid economic growth and support faster fiscal consolidation,” Dominguez said.
“The Philippines’ long track record of pursuing structural reforms through successive political administrations has led to the country’s solid macroeconomic fundamentals, which, in turn, have led to significant development and financial inclusion outcomes,” Dominguez added.
“The deep bench of technocrats who have helped steer economic policies will be staying beyond June 2022 and would help ensure the continued pursuit of structural reforms. These, in turn, will help the Philippines sail through its next stage of economic development as we expect the Philippines to transition from lower middle-income to upper middle-income status this year,” according to Dominguez.
Once the Philippines becomes an upper middle-income economy, it will lose access to concessional interest rates now being slapped on official development assistance (ODA) loans extended by bilateral and multilateral lenders.
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