The debt burden
Recent reports show that our national debt will grow to a whooping P10.16 trillion by the end of 2020. This reflects a hefty increase over our P7.73 trillion outstanding debt recorded in 2019. Our gross domestic borrowings consist mainly of sale of government securities such as treasury bills and bonds. The Bureau of Treasury also plans to avail itself of a P500 billion short term borrowing from the BSP through the repo facility and advances. This will place our country’s debt-to-gross domestic product (GDP) ratio above 50 percent for the first time since 2010.
The ratio is significant since it reflects our country’s capacity to repay our debt obligations. The 53.9 percent ratio by year-end will be significantly higher than the 39.6 percent ratio posted in 2019. Settling this gargantuan debt will be a heavy encumbrance to our people and their children still unborn. The exploding national debt, unless the proceeds thereof are deployed to constructive uses, will only contribute to the downward spiral of our economy. What is repugnant is if portions of which are embezzled and lined up the pockets of corrupt government officials. It is widely acknowledged that there is massive corruption in government. The alleged Philhealth irregularities and the reported anomalies in DPWH, which gets the lion share of our budget, are truly lamentable. The President has denounced them and our poor President has even threatened to resign out of extreme disgust.
Paying off our burgeoning loans will be the hardest part. Our government has been running a budget deficit and we have no surplus from where we can draw funds to retire our obligations. The government has announced that it has no plan to introduce any new taxes while the economy is recovering from the pandemic. Secretary Carlos Dominguez III has stated that “we are not seriously considering any taxes because taxing our citizens when their incomes are down is not a good idea.” So it is unlikely that the present regime will raise taxes before President Duterte’s term ends. With just 20 months left in office, what will happen is that the government will resort to more borrowings during the remainder of its term to further fund the crisis that we are facing. The other potential source of funds is to sell government assets to raise revenues, including the valuable Philippine properties in Japan, which we acquired as part of the war damage reparations. But we are getting mixed signals whether we are selling them or not. Neither do we have enough savings to fund our economic growth, which will help us finance our loans. The Philippines has one of the lowest savings rates in the Asean. To help reverse our economy driven down by this pandemic, we need to open up our markets and encourage people to invest. But people cannot invest unless they have enough savings.
This is like no other time for our country. Just a year ago, we were on the cusp of emerging as a developing country with a consistent GDP average growth rate of 6 percent for the past several years. Our highest GDP was posted last year at $376.8 billion. Early last year, before any thought of
a crippling pandemic has occurred in anyone’s mind, economic forecasters were rosily describing our country’s leap into becoming an upper middleincome economy. It would have been a solid achievement for a regime mired in negative publicity.
And the signs were all over. The government has relentlessly pursued massive infrastructure programs unseen in the past through its ambitious “Build, Build, Build” projects. It has extended comprehensive socioeconomic programs to its citizenry such as free college education in state colleges and universities, free universal health care, increased social security pensions, higher salaries for military and police personnel, etc.. Now our economy is reeling, devastated by the worst crisis that has crippled our country since World War II. The pandemic has shattered businesses and displaced millions of workers from their jobs. We have reopened our economy gradually hoping that such a move will reverse the downward trend of our economy. But there is no end in sight yet for our woes. Until we get the vaccine, it will be overly optimistic to expect investors’ confidence to be restored. And the vicious cycle of borrowing to fund our budgetary requirements to meet the socio-economic needs of our suffering people and the financing of our flagship infrastructure projects will continue unmitigated. Next year, the government intends to borrow another P3.03 trillion to respond to the emergency inflicted by the pandemic. This will be further augmented by another short term borrowing from the BSP projected at additional P1 trillion. Needless to mention, our debt-to- GDP ratio will go up to 58.3 percent based on the latest newspaper report. The question is: when do we stop this borrowing frenzy?
It seems that the onus of settling this debt bomb will be passed on to the next administration, and most probably to the next generation. Our immediate problem now is finding a lender. I can only commiserate with President Duterte whenever he says on national TV: “Nakahanap na ako ng pera.” But I pity my grandchildren who now carry so much debt obligation even before they learn how to count. We are wallowing in debt and each of our 110 million Filipinos bears a debt burden of P92,363, more or less. I agree with our economic managers that we should not default on our loans. We will lose our credibility if we do not honor our obligations and the cost of our borrowing will only go up. As Alan Greenspan, the former revered Chairman of the US Federal Reserve Board has said: “Debt is bad. Pay it down as fast as you can.”