By Marie Grace Padin and Paolo Romero, August 9 2018; The Philippine Star


Image Credit to Business World

The country’s credit ratings may be downgraded if the Duterte administration continues to press for the change in the form of government to a federal system due to uncertain economic and political outcomes, Finance Secretary Carlos Dominguez III said yesterday.

The National Economic and Development Authority (NEDA) at the same time warned that this could also cost the administration additional expenses amounting to as much as P131 billion in the first year of transition.

During a Senate committee on finance hearing on the P3.757-trillion proposed 2019 budget, lawmakers questioned the country’s economic managers on the estimated cost of implementing a federal government based on the constitution drafted by the consultative committee.

“The rough estimate of NEDA is P120 billion,” Socioeconomic Planning Secretary Ernesto Pernia responded.

Later, during an interview with reporters, Pernia clarified his figures and said this could reach as high as P131 billion.

He said the amount only constitutes the direct cost of running a federal type of government in the first year of the transition and does not yet consider the indirect costs, such as possible disruptions in projects and the economy.

Meanwhile, Dominguez once again expressed reservations over the draft constitution, saying it fails to address some fiscal concerns.

He said the draft does not include provisions on who will pay for the national debt, the military, the Department of Foreign Affairs and the central bank.

Sen. Franklin Drilon then asked Dominguez if he would rather not vote for the draft constitution of the Concom if presented for ratification.

“Absolutely! Yes. But it is good that it is being discussed by legislators. We have to bring out these points,” Dominguez answered.

If remained unaddressed, the finance secretary warned that the country’s fiscal deficit may become unmanageable, putting its credit ratings at risk.

According to Dominguez, credit rating agencies had earlier expressed concern on the push for federalism as it poses uncertainties in the country’s political landscape.

He said an unmanaged fiscal deficit could also derail the administration’s “Build, Build, Build” program.

Political risk
During questioning at the Senate on the second day of deliberations on the proposed P3.7-trillion national budget for 2019, Dominguez said the campaign for federalism was a concern for credit rating agencies.

“Certainly uncertainty is a political risk,” Dominguez told Senate President Pro Tempore Ralph Recto, who asked him about the sentiments of ratings agencies.

Recto asked whether with the concerns of the agencies and the continued attempts to implement federalism could lead to credit rating downgrades. The finance chief said: “Yes. That is possible.”

“So there’s nothing to gain here (federalism) so to speak,” the senator said, to which Dominguez responded: “On that point of view, yes.”