Something for the next president to ponder and bear.
The national government’s outstanding debt burden swelled to a record high P12.68 trillion as of end-March, or up by 17.7-percent from P10.77 trillion a year ago, according to the latest data released by the Bureau of the Treasury (BTr) on Thursday.
With P2.2 trillion in gross borrowings planned for 2022, of which three-fourths or P1.65 trillion will come from domestic creditors mainly through the issuance of treasury bills and bonds, the outstanding debt of the government is projected to hit a new annual record-high of P13.42 trillion by end-2022 from P11.73 trillion in 2021.
Campaign issue
This makes debt management the biggest challenge facing the incoming President to be elected in the May 9 polls as the economy needs to expand at a much faster pace amid the prolonged COVID-19 pandemic to help the government raise more revenues to meet its obligations.
The debt issue became an important topic in the campaign because the next president will inherit the problem.
During a national debate in February 2022, Vice President Leni Robredo said that “foreign debt per se is not bad.”
“But let’s make sure that what we borrowed will go to things that we really need. Let’s make sure that the return on our debts would be bigger than what we borrowed,” she added.
Robredo said the recent loans were understandable in the face of the COVID-19 pandemic. The government lacked funds due to high expenses for testing, quarantine, health-care materials and equipment, and eventually, vaccinations. However, she stressed that people would stand to lose the most if part of their taxes would be used for loan payments but would not gain any benefit from the services.
Sen. Panfilo Lacson also said that one of the solutions to the country’s foreign debt would be a balanced budget that would ensure that the funds would be distributed with little corruption.
In an interview with television host Boy Abunda in January this year, Marcos said the country’s debt-to-GDP ratio, which was at 63 percent, was still okay.
Within accepted limit
“There are other countries that are close to 100 percent, some surpassed 100 percent, so we are in a relatively good position,” he said.
The Department of Finance (DOF) earlier said it would pitch a comprehensive fiscal consolidation and resource mobilization plan to the next administration to pay for the ballooning debts and narrow the yawning budget deficits caused by the health crisis.
Various economic officials had said that fiscal consolidation could include new or higher taxes and spending cuts on nonpriority sectors, aside from driving the economy to a more robust expansion path.
“The new Philippine president/administration needs to sustain the country’s economic and fiscal reform measures, in terms of tax reform measures, intensified tax collections, structurally improve further the government’s recurring tax revenue collections, as well as good governance/anticorruption/antiwastage measures to further improve government expenditures,” said chief economist Michael Ricafort of Rizal Commercial Banking Corp. (RCBC).
He said these are all necessary “to help better manage country’s budget deficit, fiscal performance and overall debt management, by helping ease the country’s debt-to-GDP (gross domestic product) ratio from the 60-percent international threshold recently through faster GDP growth to support the country’s long-term economic growth and development especially for the coming generations.”
Despite expectations that the economy, as measured by GDP, will grow by 7-9 percent this year, the debt-to-GDP ratio is expected to rise to 60.9 percent by December from 60.5 percent last year, the highest in 16 years. In emerging markets like the Philippines, credit-rating agencies consider public debt manageable at the 60 percent-of-GDP threshold.
“The end-2021 (debt-to-GDP) level is still in line with prudent bounds of fiscal viability and the experience of the Philippines’ [credit] rating peers,” the DOF said in its 2021 annual report published on May 3.
Malacañang on Thursday also defended the country’s outstanding debt, saying the government needed to sustain the country’s long-term socioeconomic growth and development.
Acting presidential spokesperson Martin Andanar assured Filipinos that the recent borrowings would be used for the government’s COVID-19 response and recovery efforts.
“We assure our people that the country’s borrowings, which put the country’s outstanding debt to more than P12 (trillion) as of end of March 2022, shall be put into good use and utilized effectively and efficiently,” Andanar said.
Debt service load
Last March, however, the Washington-based Institute of International Finance (IIF) said higher interest rate payments due to larger debts incurred amid the COVID-19 pandemic could make it difficult for emerging markets like the Philippines to undertake fiscal consolidation, or improving the government’s revenues-expenditures picture.
“Very few emerging markets will normalize fiscal deficits in 2022. In several cases, primary spending remains well above pre-COVID-19 levels. Higher interest bills, a lasting legacy of the crisis, also complicate everyone’s deficit reduction plans,” the IIF had said.
The IIF had noted that the Philippines and Colombia were “still spending more than usual.” The national government’s expenditures reached a record-high P4.68 trillion last year, equivalent to 24.1 percent of GDP; for this year, disbursements had been programmed to further rise to P4.95 trillion.
Budget documents had shown that the national government will pay a new high of P1.3 trillion in obligations—P785.2 billion in principal amortization plus P512.6 billion in interest—this year.
In 2021, the amount of debt paid by the national government hit a record high P1.2 trillion, alongside the bigger obligations that piled up to finance the fight against the prolonged COVID-19 pandemic, Treasury records showed.
Trillion mark hit
Last year was the first time that annual debt payments breached the P1-trillion mark. In 2020, at the onset of the COVID-19 crisis, the government settled P962.5 billion in debts.
Principal or amortization payments in 2021 amounted to P774.7 billion, also the biggest since 1986, per historical Treasury data. The government paid P537.5 billion worth of principal for domestic debts and P237.2 billion for external obligations.
Interest payments last year reached P429.4 billion, also the largest since 1986. Interest paid for local borrowings such as treasury bills and bonds amounted to P333.3 billion, while interest on foreign debts was P96.1 billion.
These are amounts that could have otherwise financed social services or infrastructure such as roads, bridges, hospitals and schools.
Incurred under Duterte
The DOF said that during the current Duterte administration, the government contracted a total of 120 loans and global bonds offerings worth $50.8 billion from July 2016 to December 2021.
Nearly three-fourths of the total foreign borrowings from mid-2016 to end-2021 amounting to $37.2 billion—$15.4 billion worth of program loans plus $21.8 billion raised from global bonds offerings—had been injected into the national budget, DOF data showed.
Also, “a total of 54 project loans amounting to around $13.5 billion have been contracted in support of infrastructure flagship projects under the ‘Build, Build, Build’ program, as well as other priority sectoral initiatives and COVID-19 response” as of December last year, the DOF said. For big-ticket projects under the ambitious “Build, Build, Build” infrastructure program alone, the government borrowed $8.8 billion across 27 concessional or low-interest loans as of 2021.
“Japan leads as the largest development partner for the national government’s direct and guaranteed project loans under the Duterte administration (40 percent of total project loans), followed by the Asian Development Bank (25 percent), and the World Bank (21 percent),” the DOF said.
Foreign borrowings to bankroll the war chest against the prolonged pandemic reached $25.7 billion or P1.31 trillion as of mid-January this year, which the DOF had said would take 40 years, or about two generations, to repay. —WITH REPORTS FROM NESTOR CORRALES AND INQUIRER RESEARCH
READ: PH’s heavy debt load