Diop talks about public debt, interest rates
AT The Manila Times economic forum, Ndiame Diop — World Bank country director for Brunei, Malaysia, the Philippines and Thailand — thoroughly shared his economic insights on the two prevailing concerns faced by many countries today: public debt and unpredictable trajectory of interest rates.
Diop briefly explained the state of the Philippines’ interest rates and said: “If the [peso] depreciates, it will fuel inflation. My sense is that the authorities in the Philippines are keen on keeping it low.
There may be a preference for high interest rates for longer over slightly low interest rates with the risk of seeing inflation increasing in pesos.”
Diop highlighted that all countries were striving to bring down public debt without undermining growth. This was partly due to the series of shocks that the pandemic had brought about since 2020, which led to rising debt and growing costs for many countries.
Therefore, fiscal considerations were critical, said Diop.
“Here, I see two-sided risks: the risk of doing little in terms of fiscal consolidation, and the other side, basically, means collecting more and spending better.”
In order to manage public debt and stop it from furthering, Diop suggested that the country must zero in on broadening the base and improving tax compliance rather than increasing the tax rates since tax rates are already the highest in the region.
Diop added, “On the expenditure side, the opportunities for improving the efficiency of spending is huge in the Philippines. In many sectors, you can definitely advance system fiscal consolidation by being more efficient on the spending side.”
Diop also gave a friendly warning and said: “Unfortunately, shocks will happen because we are in an interconnected world. What’s happening in the other corner of the world may affect countries and regions in the Philippines. So, that is why anticipating and improving, making some efforts at system fiscal consolidation is very critical.”
Reflecting on the past year and looking forward to the next, Diop concluded that there would be more balances in 2024 than in 2023.
However, one important player that would significantly play out in the world’s financial situation this year was the United States (US) because of its elections. Diop explained that given the size and importance of the US economy, countries across the globe, including the Philippines, would likely be affected with political and policy changes in trade, climate, energy, immigration and more.