By Chino S. Leyco, June 8, 2022; Manila Bulletin
The World Bank said the Philippine government’s debt load remains manageable despite recent acceleration amid the prolonged pandemic.
Even it has ballooned, Kevin Chua, World Bank senior economist noted that the government’s debts are mostly held by Filipino creditors, long-dated IOUs and peso-denominated.
“We think the debt is still manageable,” Chua told reporters during a virtual briefing on Wednesday, June 8. “Most of our debts are long-term, domestic, and peso-denominated and these should shield us from risks.”
Data from the Bureau of the Treasury showed that of the total P12.679 trillion debt as of April, 69.9 percent are domestic borrowings and 30.1 percent was sourced overseas.
However, as a percentage of gross domestic product (GDP), government debts have now account for 63.5 percent of the economy, above the internationally comfortable threshold of 60 percent.
For this reason, Chua said the government should embark on fiscal consolidation, noting a high level debt-to-GDP ratio will become a drag to the country’s growth.
Last June 7, the Department of Finance estimated that the government would need an additional P250 billion per year to bring down the government’s financing gap to a figure comparable to the pre-pandemic level of 3.4 percent.
The outgoing Duterte administration also unveiled its Fiscal Consolidation and Resource Mobilization Plan that aims to address the government’s ballooning pandemic-induced debt, which amounted to P3.2 trillion.
The fiscal consolidation plan, however, includes the deferral of income tax reductions scheduled for individual taxpayers and removal of certain value-added tax (VAT) exemptions for senior citizens and persons with disabilities.
Incoming Finance Secretary Benjamin E. Diokno said the new administration will focus on the government’s tax administration during the first year of President-elect Ferdinand R. Marcos Jr., instead of introducing new taxes.
Diokno explained he was not worried about the government’s ballooning debt load, noting that the economy can “easily” bring it down once the country’s GDP grows by at least six percent to seven percent.
He has also no plan to reduce government spending to temper the nation’s debt, and vowed to continue the Duterte administration’s ambitious infrastructure program.
Diokno believes the tax reforms initiated by President Duterte in nearly six-years provided the incoming administration enough legroom to generate additional revenues to support the same level of public spending.
With better tax system today, Diokno said he is confident that the new administration will be able to raise enough taxes to ensure that the government will meet its budget deficit ceiling targets.
However, Diokno added that there is room for improvement in tax administration, particularly in the Bureau of the Internal Revenue and Bureau of Customs’ digitalization program.